Michael J Boskin
April 15, 2005
The critics of President Bushs Social Security reform proposal claim there will be massive cuts in guaranteed benefits of 40% or more. That is absurd. Nobodys benefits need to be cut and nobodys taxes need to be raised. Current tax rates, given projected economic growth, are sufficient to deal with the demographic deluge. However, the current benefit formula projects real Social Security benefits per recipient will double within a few decades. Further, benefits involve immense economic, demographic and political risk.Four commonsense reforms would make Social Security solvent and modernize it. First, switch from wage to price indexing, except for those with low earnings; 2) slightly increase the retirement age in the distant future, while maintaining a strong early retirement option; 3) the Bureau of Labor Statistics (BLS) not the Congress -- should soon implement its far more accurate chained-CPI that accounts for consumer substitution in purchases. 4) add a small individual accounts component to Social Security.These reforms will resolve the solvency problem without a tax increase, eradicate poverty among the elderly, and for the first time, enable the bottom half of the wealth distribution to acquire financial assets.Critics claim there is no problem, no rush. The first baby boomers retire in three years. The ratio of beneficiaries to taxpayers will double in a few decades, making reform ever more difficult. Reform is overdue and should be gradual and cumulative, to avoid economic disruption to beneficiaries, taxpayers and the economy. Thus reform really is urgent.