No "Simple" Solution

December 2, 1999

In a Nov. 30 letter to the Washington Post, Senator Daniel Patrick Moynihan (D-NY) wrote "Social Security can be made solvent indefinitely by adopting some simple changes." But the four changes Moynihan advocates make clear why solvency alone cannot be the measure for Social Security reform.

Moynihan's "reforms" include:

• Making cost of living adjustments (COLAs) "more accurate" by reducing them by eight-tenths of one percent. While recalibrating measures of inflation may have merit from a technical standpoint, make no mistake that COLA adjustments are proposed for the purpose of cutting retiree benefits. And cut them they would: a 0.8 percent annual reduction in the COLA would cut real benefits by almost one-third by 2035.
• "Modernizing" Social Security by forcing newly hired state and local workers to join the system and by taxing Social Security benefits on the same basis as income from private pensions. The first would force new workers into the system, adding short run tax revenue but harming these workers' retirement security. Expanding taxation of Social Security benefits would reduce retirement incomes for many workers.
• Increasing the normal retirement age over time to 70. An increased retirement age is both a tax increase and a benefit cut: instead of retiring and collecting benefits, workers would be paying additional payroll taxes.
• Returning Social Security to a "pay-as-you-go" status by cutting current payroll taxes by two percentage points. While this current payroll tax cut might (or might not) be used for personal retirement accounts, future payroll tax rates would rise to the highest level ever.

Unless Social Security reform incorporates market investment of payroll taxes to raise the program's rate of return, Moynihan's "reforms" - higher taxes, lower benefits and an increased retirement age - are the only alternative.

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