Liberals Critique Social Security Reform
July 22, 2002
Although admitting that without changes Social Security benefits would have to be cut 25 percent by 2041, a recent paper by Peter Diamond and Peter Orszag attacks personal retirement accounts on the grounds that they will cut benefits.
- Diamond and Orszag compare the proposal by the president's reform commission to the benefits the current Social Security program promises to pay, even though it is a promise the government cannot keep.
- Numerous unbiased authorities, from Comptroller General David Walker to the Congressional Research Service to the Concord Coalition, have all criticized the comparison of a proposal only to promised benefits.
Diamond and Orszag claim their comparison is valid, because today's average retiree gets benefits worth about 40 percent of his wages. And tomorrow's retirees have also been promised about 40 percent of their wages. Diamond and Orszag argue that reform plans that yield benefits below this rate are cutting benefits. However, the existing program simply may not be able to afford such high rates.
Diamond and Orszag also assume private accounts would earn returns no higher than the government bonds held in the Trust Fund. Moreover, they criticize the large transfers from general revenues that the Commission's plan requires.
- But even Social Security's actuaries have assumed higher returns on private accounts than Diamond and Orszag.
- And the revenue transfers the Commission's plan needs are smaller than those the current Social Security program will require.
In addition to distorting the evidence, observers note that Diamond and Orszag provide no hint of an alternative, workable plan.
Source: Ramesh Ponnuru, "When Wonks Attack" Tech Central Station, July 18, 2002.
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