Daily Debunker

April 22, 2005

When the biggest concern among the politicians in Washington is the solvency of Social Security, not whether the invaluable retirement program helps provide some security in Americans' golden years at the fairest possible cost to taxpayers, suggestions such as this one from Federal Reserve Governor Edward Gramlich make a lot of sense:

"The United States should abandon a cap on wages subject to the Social Security payroll tax and raise the retirement age to fix the program's shaky finances, a top Federal Reserve official said on Thursday.

"Fed Governor Edward Gramlich presented a proposal to a group at Widener University that he said could ensure the federal retirement system stayed solvent and begin to address the financial woes of the federal Medicare program."

Yes, if solvency is the only issue at hand – and it does appear to be the singular focus of the Bush administration thus far – then raising the retirement age is a fine idea. But raising the retirement age under the current system is merely a benefit cut. And as for eliminating the wage cap, the Cato Institute has pointed out many times in this feature that such a move would constitute one of the largest tax increases in history and still only provide seven more years of solvency.

Of course, politicians can ensure solvency and a create a better retirement program for all Americans through a system of personal retirement accounts. Take, for example, the Individual Social Security Investment Program Act (HR 530), also known as the Johnson-Flake bill. According to the Social Security Administration, this measure would "eliminate Social Security's long rang actuarial deficit" and restore the system to "sustainable solvency." It would also allow Americans to invest 6.2% of their Social Security payroll tax into personal retirement accounts, giving them the opportunity actually to increase their net benefits.

Focusing exclusively on solvency is a mistake. The opportunity for ownership, inheritability and choice provided by personal accounts is a much more vital component to any reform plan under consideration in Congress.