Kevin Drum is advocating a means by which Social Security could be privatized in a meaningful way. As he points out, if reasonable leaders were seriously advocating such a plan, he could get behind it. The problem is, Drum admits his plan is a “fantasy” — Bush and his posse would never support it.
The plan is deceptively simple: In 2042, when Social Security is slated to run out of money, just move the retirement age back far enough to cover the gap in funding — probably from 67 back to 72. This gap is what would be covered by private accounts. Everyone slated to retire in 2042 or later would get an account they could use to cover this gap. The benefit of such a system is if the account fared poorly, the worst that could happen is the individual would postpone retirement a year or two.
Kevin suggests that the only reason his plan wouldn’t work is that Bush would never support it. Allow me to offer a few more. First off, let’s backtrack. Who’s going to be 67 in 2042? That would be workers born in 1975. So everyone born after 1975 would be subject to a new “tax” — the portion of Social Security devoted to their private accounts. This new tax would fall exclusively on workers from age 16 to 30. This is precisely the portion of the population that is already disproportionately funding social security because it’s a regressive tax that begins with dollar one of income and isn’t required of the rich.
Okay, so there’s a relatively easy answer to this dilemma: just give everyone the accounts. It’s slightly less unfair this way, because employers at least don’t have a disincentive to hire younger workers. Then if someone is slated to retire (as I am) in 2034, they might be able to clip an extra year or two off of that because of the money they’ve accumulated in their private accounts. Wonderful.
But this plan still doesn’t address some of the other problems with private accounts. For example, poorer workers will still have less money to invest in their accounts. So while worker A might have been investing 1 percent of $90K for 40 years, worker B would only have invested 1 percent of $25K over the same period. Who’s more likely to have to put off their retirement? We could simply ignore this problem, or address it by making the personal accounts even more regressive — make the tax fall only on the first $25K of income, for example. Yum.
Here’s my fantasyland solution to the Social Security problem. First of all, let’s take the “trust fund” out of the picture. It’s simply too tempting for the rest of the government to raid Social Security to pay for other programs. I suggest an immediate cut of the payroll tax so that it exactly covers what we spend on Social Security. The best way to do this is to exempt, say, the first $10,000 from payroll tax, thus cutting down on the tax’s regressivity.
Now we will see the *real* problem with the federal government: suddenly the deficit will baloon as all that money we’ve “borrowed” from Social Security emerges into realityland. But hey, we’ve just gotten a tax cut, so we can afford a revenue-neutral increase in the progressive income tax. That takes care of the problem for now.
In 8 or 9 years, when Social Security costs threaten to escalate, I’d suggest a gradual increase in the payroll tax back to 2004 levels — but added on the high end, not the low end — coupled with a gradual increase in the retirement age. I know I’m in the minority here, but I’d advocate rolling that age back as far as 72 or even 75. After all, people are going to save *something* for retirement, and better for them to have a point where they know Social Security will kick in, so that they have a finite time period to save money for. So this would be similar to Drum’s plan, only I wouldn’t force people to save. Yes, there will be a few people who are unable to save for retirement, but if they reach a point where they are unable to work before they reach age 75, they’ll be covered by Social Security disability.
Sounds a little harsh, I know — only covering retirement for those who are unable to work, but isn’t it just as harsh to ask struggling young families to pay for healthy, active seniors’ luxury golf club dues?
I’m not sure how to take suggestions about “saving” Social Security, since it apparently wouldn’t need saving if Congress had not “borrowed” its funding and replaced it with IOUs. The simple fact is that Congress is the archetypal fox guarding the henhouse. They cannot be trusted, no matter what they say and do. Take, for example, the promise they made my father, that if he took a reduction in his military retirement, the government would pay his survivor 55% of his retirement. Only after he died it turned out that they had changed their minds and would pay only 35%, because they didn’t want double-dipping. Only there was no double dipping. And they never said anything about that anyway. They just said, “Take your reduction and your widow will get 55%. And, by the way, once you make that decision, you can’t change your mind.” He couldn’t; they could. So, I don’t now whether to trust the motives of any elected official who wants to “save” social security. Speaking of motives, I had a revelation when listening to a conservative talk show host talk about privatizing SS. I realized that he at least didn’t want to save it, he wanted to kill it. He, like most upper income people, would dearly love to have that money so they could do what they want with it. They probably would not save it, since they already have nice retirement funds. The poor won’t save it either, unless the government forces them to. Ah well.