Precisely because several of the initiatives on Social Security seem to have stalled, the
time may be ripe for some real progress to be made.
There are two strong arguments for looking seriously for some reform of the U.S. Social
Security system. The first is what some have called the solvency problem, though I prefer to
think of this as a simple logistical issue of how to deal with the demographic reality that the
ratio of those paying into the system to those being paid by the system is going to continue to
decline. According to the 2005
Report from the Federal Old-Age and Survivors Insurance and Disability Insurance Trust
Funds, the number of workers per beneficiary fell from 16.5 in 1950 to 3.3 in 2004, and is
projected to decline to 2.2 workers per beneficiary by 2030.
The second issue is the decline in the U.S.
national saving rate, which over time means a smaller capital stock and more debt owed to
foreigners, both of which will leave us less able to pay for those benefits or anything else in
2030. Because Social Security currently functions as a retirement system that generates zero
national saving, any reforms that would introduce an actual saving component to the system
deserve to be looked at very seriously.
Despite the very good reasons for reform, Bush’s proposal appears to be
stalled, and I certainly hope that the DeMint plan doesn’t
go anywhere either. As a result of the impasse, the Democrats have a rare opportunity to shape
the agenda by putting a constructive proposal on the table.
I for one am very pleased that some
Democrats are doing just that. Among the ideas being discussed are making employee
participation in 401K type plans more automatic (a proposal long favored by Brad DeLong) and
supplementing the initial contributions with what would in effect be government funds. I think
it makes a lot of sense for Republicans to take these proposals very seriously as a basis for
finding a truly bipartisan solution to a problem that greatly needs to be addressed.
I would nonetheless like to suggest that it is not realistic to anticipate huge boosts in
national saving from any of the proposals currently put out by either Democrats or Republicans.
For this reason, some rather more mundane steps for coping with the demographic logistics
undoubtedly also need to be part of the picture. I agree with Arnold Kling, Andrew
Samwick, and Political
Calculations that the most efficacious way to handle the ratio problem is to make further
adjustments beyond those currently scheduled that would increase the average age of retirement.
This just seems like the logical adjustment that needs to be made in response to continuous
increases in life expectancy and the number of people that the system is being asked to support
each year. Senator Chuck Hagel (R-NE) last March
introduced a plan one of whose components would do just that, not only by raising the normal
retirement age to 68 in 2023, but also by adjusting the benefit formula so that total expected
lifetime benefits don’t increase as longevity goes up, which has a similar effect to raising the
retirement age while giving workers some added flexibility. Centrist
Policy Network and Vox Baby
have some helpful analyses.
A solution based solely on adjusting the retirement age
would have no political excitement and some potential political costs associated with it, but
has the otherwise rather strong selling point that it actually would work. In terms of
practical politics, it would obviously have to be packaged together with at least some modest
component of one of the more exotic proposals that have been put on the table.
So here’s my suggestion: the Democrats take some formulation of Hagel’s retirement age ideas,
add it to some of the elements they’re currently discussing, and call it the Democratic Plan to
Save Social Security. Bush and the Republicans shift positions nimbly, claiming that yes, this
was the sort of thing they were trying to accomplish, and they’re pleased to be able to work in
a bipartisan way to solve the problem.
Who would actually get the political credit? I think both sides would, and both sides
should, if it were to work out this way. Bush would deserve credit for spending his political
capital in order to put an issue that everybody was afraid to discuss front and center on the
table. The Democrats would deserve credit for engaging the issue constructively and trying to
forge a solution. Both sides make some compromises, and the public is grateful that actual
progress was made on an important public issue. I don’t know, it seems to me that’s maybe the
way a democracy is supposed to work.