July 13, 2010

GIVEN HOW EASY IT IS TO FIX THE FINDING IT OUGHT NOT EVEN BE CALLED A CRISIS:

Obama's Entitlement Opportunity: The president's deficit commission isn't likely to agree on tax increases, but don't be surprised if it recommends Social Security reform. (Fred Barnes, 7/12/10, WSJ)

One reform that could win bipartisan support would, over time, raise the Social Security retirement age to 70. An extension of retirement age to 67 from 65 was pushed in 1983 by the Greenspan Commission, along with a boost in the income base for payroll taxes. President Reagan backed the changes and Congress enacted them.

A second reform, bolder and more controversial, would means-test Social Security, gradually slowing the growth of benefits for the more affluent but sparing those with lower incomes. The model for this is the Pozen plan, the brainchild of Robert Pozen, a former vice chairman of Fidelity Investments and influential Social Security reformer.

The Pozen strategy would utilize a formula called "progressive indexing." Future retirees with higher incomes would see their benefits rise less than under the current formula, those with low incomes would continue to get full increases, and the benefits of those with middle incomes would rise according to a sliding scale. Current Medicare recipients would not be affected.

No one, not even those with high wages in the years on which their Social Security benefits are calculated, would face an actual reduction. Under the Pozen plan, higher income workers would have increases in their benefits based on inflation, while those with low incomes would continue to have theirs based on the more generous index of wages.

The great attraction of the Pozen plan is that it would erase more than two-thirds of Social Security's long-term shortfall of $4 trillion. (The 2010 shortfall is $29 billion.) The downside is that many Democrats opposed the plan when President Bush endorsed a version of it in 2005 when he was promoting broad reform of Social Security.

Posted by Orrin Judd at July 13, 2010 4:36 PM
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