Social Security plan doubted Although President Bush made Social Security reform a centerpiece of his domestic agenda, the most likely outcome of that effort is nothing happens during his administration. That is the view of Dr. Peter Diamond, institute professor at Massachusetts Institute of Technology and co-author of a book with a different plan of reform. "President Bush ... has not proposed a process for restoring the solvency of Social Security," Diamond said after speaking Wednesday to about 100 people, mostly students, at University of Memphis. He spoke to the Economic Club of Memphis Wednesday night. "I don't know how you get to legislation," he said. Diamond, co-author of "Saving Social Security: A Balanced Approach," said he favored a commission similar to the one President Reagan formed in 1983 to propose Social Security reform. All plans will inflict pain on someone, so both Republicans and Democrats will have to be involved in making changes, Diamond said. Little will be done until a process is established to advance reforms, he said. In his talk, Diamond outlined the problems facing the Social Security system and ideas for dealing with them. The law says the Social Security system may only pay benefits as long as there is money in the trust fund, he explained. Income from payroll taxes plus the fund surplus will be enough to maintain current benefits until 2041, according to the annual report from the Social Security actuary issued last week. Without changes, in 2041 the the system will be able to afford 74 percent of promised benefits. By 2079 -- the actuary projections go 75 years out -- the figure is 68 percent. Raising the payroll tax this year by 1.8 percentage points, from 12.4 percent (half employer-paid, half worker-paid) will put the trust fund on an even keel over 75 years, Diamond said. "Nobody is suggesting this as a political solution," he said. "It's a way of quantifying the problem." President Bush has said he opposes boosting the tax rate. The key to the President's plan is to allow people less than 55 years old to invest up to 4 percentage points of their share in private accounts. If that becomes law, cash will flow out of the system, adding to the hole that the trust fund faces now, Diamond said. The Social Security actuary estimates that will deplete the trust fund by 2030; the Congressional Budget Office says 2036 compared with its estimate of 2052 without change. The President has said he is open to raising the maximum income subject to the tax -- it's $90,000 and it rises every year based on real wage gains. He has proposed no benefit cuts. Diamond and his co-author, Peter Orszag, advance a combination of tax increases and benefit cuts. The "legacy cost" -- the expense of paying more in benefits to our parents and grandparents than they paid in -- should be spread out among everyone including four million state and local workers who are not part of the system now, he said. A 3 percent tax on earnings not included in the normal Social Security tax would also be added. The Diamond-Orszag plan would increase the Social Security tax gradually to 14.2 percent by 2005 and benefits would be cut, mostly for today's younger workers -- 8.6 percent from current law levels for 25 year olds. According to the Social Security actuary, "This proposal would ... restore solvency to the ... program over the 75-year projection period under the intermediate assumptions of the 2003 Trustees Report."
-- David Flaum: 529-2330 |