Washington Post: Take Social Security reform seriously

The release of the annual Social Security Trustees Report has coincided with a cross country drive – current location: Salt Lake City – so I've been a bit short on postings and comment. The short story is that not a lot has changed, except for the assumption that the health reform bill will bring some extra revenue into the program, enough to lower the long-term deficit from 2.00 percent of payroll to 1.92 percent. In the long term, I believe the health plan would raise Social Security taxes by around 8 percent.

Here's the reason: the health legislation imposes an excise tax on so-called "Cadillac" health care plans. But both the CBO and Social Security 's actuaries assume that in most cases, employers offering such plans will reduce their generosity to avoid the tax. But since health coverage is part of people's total compensation, a competitive labor market means that less expensive health coverage will tend to result in higher wages. That will keep total compensation around the same as before. Higher wages means more payroll taxes, which means more money coming into the system. That's the long and short of it. I don't disagree with this analysis, but there's also some uncertainty about it.

Today, the Washington Post responds to the Trustees Report, and in particular those who take it to mean there's no real problem or that we should solve that problem in only one way: raise taxes.

We would prefer a more balanced solution, one that relies on a combination of revenue increases and benefit adjustments. On the revenue side, it's essential that the funding source come from within the Social Security system itself. The coalition is correct that Social Security should not be used to deal with deficit problems outside the program, but the converse is also true: Getting Social Security on a sustainable footing should not add to the deficit. Raising the payroll tax ceiling to cover the same share of wages that it did in 1983 would make sense, but that would only solve about one-third of the long-term problem. Some adjustments on the benefits side, particularly making benefits less generous for the highest-income recipients, would also make sense.

To be continued…