So. The Great Social Security Debate starts.
The Democrat postion seems to be to make no changes in benefits, no private accounts of any kind. Those Democrats that are willing to admit there may be a problem argue for increasing (or eliminating) the current $90,000 limitation on taxable wages. Never mind that Dole's 1986 "fix" doubled the previous limit, increased the tax rate itself, tripled taxes on the self-employed and reduced benefits -- all without solving the problem. We cannot afford this mistake again. The problem is not solvable on the margin.
The Administration position is a partial privatization with a gradual Treasury assumption of the unfunded liabilities present in the system. I don't see how this plan works without a formal recognition that the Social Security Trust Fund is a joke and placing Social Security directly on-budget. The fiscal effects of this are unclear and could well be inflationary if they monetarize the liability.
So, I can't say that I'm on board with the White House here. While the Democrat position is a non-starter, and I do like the idea of private accounts, the Bush partial privatization plan is very limited and smacks of many compromises. I'd prefer lots more bang for the pain, and an assurance that we don't have to revisit this yet again.
What I do know is this: Defined benefit plans are doomed. Corporate plans are failing right and left as corporate promises to fund future benefits fail to be honored. Seems like every day another major corporation shucks its pensioners in Bankruptcy Court. As life expectancies increase, the pressures on these corporate pension schemes will increase. Very few will survive, especially if the pace of life extension accelerates.
Which brings me to the real problem of Social Security. The basic assumption that the current generation of workers can support the current generation of retirees breaks down as life expectancy increases. Even with very conservative estimates of this increase, Social Security is on shaky ground. If, as some think, a life expectancy singularity is approaching there is no hope at all. Only a generational decoupling, based upon individual responsibility for one's own retirement, can solve the problem.
Hence the Bush plan, which mixes defined benefit with defined contribution. I don't know how this is going to play out but my gut feeling is that neither partial privatization nor the Democrat alternatives begin to address the problem, and there is a danger that a phony reform will be worse than no change. See California Utility "Deregulation." We may be nibbling the bullet rather than biting it.
More to come.