Responding to John

I disagree with a lot of the points raised in a comment on my last post, by a reader named John. I think it is worth addressing each of them in a new post.

The Democratic plan should be...Social Security.

This is a reasonable position. If so, then I think that senior elected Democrats should be able to specify a plan to restore it to solvency.

There's a good chance it will be fine if left entirely alone.

Based on the simulations in the 2004 Trustees Report, there is virtually no chance that it will be solvent if left entirely alone. Please see this chart. It shows that over the 75-year projection period, there is less than a 2.5 percent chance that the cost rate will be below the income rate at the end of the period. So I don't know what "it will be fine" means here.

If a few tweaks are found to be needed, ...

This is written as if Social Security's long-term solvency is still an open question. The discussion of Social Security's long-term solvency problems and what to do about them has been going on for over a decade. Consider the 1994-6 Social Security Advisory Council's Report as a starting point if you like.

... then raising the payroll cap on upper-income taxpayers (the same ones who've benefitted from unfunded, irresponsible tax cuts) will more than suffice.

I don't see how we get "more than suffice," based on current projections. To see why, suppose the cap on taxable payroll were removed entirely, as with the Medicare payroll tax, and that no additional benefits are accrued based on the additional taxes paid. Also assume (heroically) that an additional 12.4 percentage point tax on this payroll causes no reduction in hours of work. This would expand the Social Security taxable payroll base by about 20 percent. (In 2003, Medicare collected $149.2 billion of payroll tax revenue with a 2.9 percent tax. See this table. This implies a base of about $5.14 trillion. In 2003, the Social Security taxable payroll tax base was $4.34 trillion. See this table.) So even in this scenario, uncapping the payroll tax base would be equivalent to about 0.2*12.4 = 2.5 percentage points of payroll. This compares to an unfunded obligation that is 1.89 percentage points of payroll when measured over the next 75 years and 3.5 percentage points of payroll when measured over an infinite horizon (see this table.) This is more than a tweak, and it doesn't really suffice.

Any plan that includes carving out private accounts undermines the Social Security system--Boxer was exactly correct in saying so.

If Hagel's plan is adopted, then the system is solvent for the next 75 years, the normal retirement age is higher starting in about two decades, and workers have the option of voluntarily establishing a personal account. It is not apparent to me how this "undermines" the system, let alone "destroys" it, which is what would have to be true in order for Boxer to have been "exactly correct" in what she said.

More on comments in the next post.

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