Moynihan Scheme Workable, Sensible
First Bill Clinton, then Sen. Bob Kerrey, then Sen. Daniel Patrick Moynihan. Three prominent Democrats have touched the fabled “third rail” of American politics - Social Security reform. Instead of being electrocuted, all have lived to tell about it.
This is good news. What’s more, from Kerrey and Moynihan have come proposals strikingly similar to those from the Republican camp, where the influential Heritage Foundation has been arguing that Social Security be changed from an income transfer to an investment program.
With President Clinton calling for a national debate on how to prevent Social Security’s impending bankruptcy, perhaps a bipartisan solution is beginning to emerge.
Perhaps we’re dreaming. After all, this is an election year and it would be unusual if one party or the other does not shriek that its rival intends to pillage Aunt Matilda’s retirement.
Nevertheless, let us take heart, particularly from Moynihan’s March 16 speech to the John F. Kennedy School of Government at Harvard. The liberal New Yorker, respected by members of both parties as an expert in social policy, unveiled a plan to save Social Security. Kerrey, a Nebraskan, has a similar idea.
Before examining Moynihan’s proposal, let’s address a few misconceptions: Social Security is not a savings plan and it’s not in the red, yet. Today’s Social Security taxes go straight to today’s retirees. But, in the next century when the huge baby boom generation retires, working people won’t be sending the system enough tax revenue to pay the boomers’ Social Security benefits.
At the moment, however, Social Security’s tax revenues exceed Social Security’s outlays by $95 billion a year. Although few politicians acknowledge it, that $95 billion is borrowed to finance deficit spending in other federal programs, like defense. The claim that the federal budget recently came into balance, therefore, is misleading. Federal debt continues to grow. The loans to Social Security simply are hidden by an accounting method that uses the Social Security surplus to hide deficits elsewhere.
As a strong economy pours revenue into the treasury, however, it has at least created enough financial confidence for politicians to tinker with Social Security’s status quo.
With all of this in mind, Moynihan proposes the following:
Repeal the earnings limit that discourages Social Security recipients from working.
Raise the retirement age to adjust for improving life expectancy. The age would reach 68 in 2017 and 70 in 2065.
Trim Social Security’s inflation adjustment, to adjust for the fact it exceeds cost-of-living growth by 1.1 percentage points.
Reduce Social Security’s payroll tax by 2 percentage points, returning to a pay-as-we-go system.
Allow workers to fund personal savings accounts with proceeds from the 2 percent cut in the payroll tax.
The last point is important. While preserving Social Security as we know it, Moynihan also would help enrich working stiffs who now get only a 0.7 percent return on their Social Security payments, on average. With a savings account that would build every year, workers could invest at the much higher market rates many now get on their 401k’s and IRA’s.
Ten years ago, Britain authorized its workers to divert some of their pension taxes into private investments. Two thirds did. Now, their private accounts hold $1 trillion - nearly equal to the entire British economy and a source of improved financial security for them and their country.
It’s time for the United States to do likewise.
, DataTimes The following fields overflowed: CREDIT = John Webster/For the editorial board