Opinion Editorial | |
| Wednesday, April 1, 1998 | |
A Step Forward in Social Security Debate |
On March 18, Senators Daniel Patrick Moynihan (D-N.Y.) and Bob Kerrey
(D-Neb.) introduced an important bill, S. 1792, the Social Security Solvency
Act of 1998. It is an major step forward in the debate on Social Security,
which thus far has been polarized between steadfast defenders of the status
quo and those who wish to completely privatize Social Security. Moynihan
and Kerrey try to walk a middle road between these two extremes, by making
major modifications to Social Security while preserving its core. Following
are key provisions of their bill:
Federal revenues would be reduced by about $800 billion over the next
ten years. To pay for this tax cut, Moynihan and Kerrey would reduce cost of living
adjustments (COLAs) for current Social Security recipients by one percent,
in order to account for the overstatement of inflation by the Bureau of
Labor Statistics. The retirement age, which is already scheduled to rise
from 65 to 67 under current law, would be further raised to 70 in the year
2065. The earnings base for Social Security taxes would be increased to
$97,500 in 2003. (It is currently $68,400 and is estimated to be $82,800
in 2003.) All Social Security benefits would become taxable exactly as
private pensions are now taxed. Moynihan and Kerrey would also eliminate the so-called earnings test,
which reduces Social Security benefits recipients under the age of 70 who
continue to work. The Moynihan-Kerrey plan is a welcome addition to the Social Security
debate. Brian Keane of Economic Security 2000, a pro-reform group, rightly
called it "a giant step in the right direction." However, conservatives
contemplating jumping on the bandwagon should understand clearly the dangers
of the Moynihan-Kerrey approach. First is the reduction in benefits for current retirees implied by the
COLA adjustment. Although I agree that the consumer price index (CPI),
which is used to calculated COLAs, does overstate inflation, it is too politically
dangerous to arbitrarily cut COLAs the way Moynihan and Kerrey propose.
Certainly, any Republican advocating such a change would be demagogued
to death by Bill Clinton, the American Association of Retired Persons (AARP)
and the Democratic National Committee. This is why virtually all Social
Security reformers are committed to maintaining benefits for current retirees.
Any changes in COLAs should come about from improvements in the CPI, not
through legislation. Second, it is a bad idea to make contributions to personal savings accounts
optional. Too many workers will simply take the money and run, thus leaving
them unprepared for the sharp reduction in benefits implied by the rise
in the retirement age. Contributions, therefore, need to be mandatory. Third, the increase in the taxable wage base will necessarily raise Social
Security benefits for high income workers, because of the way the benefit
formula works. Thus although this change raises revenue in the short run,
over the long run the revenues are paid out in the form of higher benefits. Senators Moynihan and Kerrey are to be congratulated for showing leadership
in an area where the Clinton Administration has shown none. Theirs is a
good first step, but further work is needed. Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis),
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