Monday, February 21, 2005

SS Reform

I was actually disappointed that part of Clinton's '96 run was built on not touching SS, and I'm disappointed that the Dems' Congressional leadership is bent on preserving the New Deal, rather than proposing new initiatives to draw a larger marketshare at the ballot box.

I don't ever expect to see the $15,388 that I have paid into it so far in my lifetime, not to mention the $15,388 my employers have matched.

SS is a Ponzi scheme, and is therefore only sustainable as long as you have more suckers coming into the system than are cashing in on it. It was probably a good tool in the Depression years, but with a larger economy, plus the introduction of new retirement tools, such as IRA's and 401(k)'s, it's time to do serious reform. Even if it's not yet a crisis.

Given that we can't scrap it and give employees a 6.2% raise (and employers an equal cut in payroll expenses), I would do the following:

Change the link from the rise in wages to the rise in prices, which do not inflate as quickly as wages. Basically, it would be saying the purchasing power in 2005 would be the same in 2050.
Raise the cap on income for the payroll tax (currently $87,900), so it's not so regressive and so that it generates more revenue to cover expenses.
Implement means testing, so that we're not giving Donald Trump an extra source of revenue when he retires. I could drop this one as long as the cap on payroll tax was raised.
Allow for private accounts. However, I don't understand Bush wanting to limit how you could invest private accounts. If I want to take higher risk with money from my paycheck, I should be able to do so.
Expand IRA's and 401(k)'s to raise the caps, and perhaps to encourage to contribute more to employees' accounts and accelerate the vesting period.

Of course, the transition to private accounts would have been better served by the surplus funds Bush had before tax cuts than by borrowing more money. And that is money that will come from Japan and China, our 2 largest creditors. I don't mind borrowing from Japan so much, as they have proven a consistent ally. However, going into hock to China, a country whose economy is projected to surpass ours in size in the next 20 years, isn't good financially or politically. Financially, interest rates at home will go up. Politically, we lose some of the leverage we currently have with them.

On a related note, David Brooks notes that by 2015, half of all government spending will go to those 65 or older. ("In the Midst of Budget Decadence, A Leader Will Arise", NY Times, 2.19.2005). I'm not sure where he got that number from.

1 comment:

Jeffrey Hill said...

Wow! To the right of Bush, even. I can only think of two reasons to limit the private accounts: 1)it denotes some sort of devotion to the security part of the program and 2)it's been the third rail for so long that without that caveat Bush probably felt he would have a tougher sell on his hands. Whenever he mentions it, he seems to be trying to assuage the public.

But it's hard to argue idealogically against lifting that limit or even chucking the whole program.