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December 03, 2004
More On Social Security From Blogland
JustOneMinute takes a justifiably critical look at an editorial in today's New York Times. (I believe the phrase is "fisking.") I can't help but admire any analysis that starts with the presumption that there is a lot of good honest debate to be had --
Social Security privatization is complicated, and the Bush side has not put forward a specific proposal. Furthermore, there are sensible objections to the types of plans being floated.
-- and this central point just can't be repeated enough:
The concept of privatization is that a portion of what the government owes as benefits will be reduced. In exchange, the government will set aside a portion of current tax receipts in private accounts. Since those tax receipts had been previously earmarked to pay current benefits, the government must borrow to make up the difference and maintain payments to current retirees.
The net effect is that the government has restructured its liabilities - it owes less to Social Security beneficiaries in the distant future, and owes more to holders of Government bonds (which may be of long maturity.) Although an increase in payroll taxes may be part of the Social Security solution (Gregory Mankiw, outgoing chairman of the Council of Economic Advisers, has ruled out new taxes), no one is suggesting that Congress ought to raise one trillion in new taxes to cover the privatization transition costs. In other words, whether Congress is willing to raise taxes or not, significant borrowing will be necessary to fund the transition.
If you are interested in this topic, this post should be on your reading list. And as I am endorsing good, evenhanded debate, let me second Andrew Samwick's challenge to critics:
Choose a projection period over which you feel confident in the accuracy of the underlying economic and demographic assumptions, subject to the constraint that it is long enough to cover the retirement of the baby boom generation. Provide specific reforms to the system such that the Social Security trust fund is positive and trending upward in the last years of that projection period. Do not use any gimmicks related to benefits or costs in those last few years.
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