A Bad Plan for Social Security

Henry J. Aaron
Henry J. Aaron The Bruce and Virginia MacLaury Chair, Senior Fellow Emeritus - Economic Studies

December 9, 1999

One can only wish that Sen. Daniel Patrick Moynihan’s plan for closing Social Security’s projected long-term deficit was as painless and fair as he suggested [letters, Nov. 30].

The Moynihan-Kerrey plan first deepens the financial problem by cutting Social Security revenues. Then the plan cuts benefits, eventually by one-third or more. The reduced cost-of-living adjustments would continue indefinitely, whether or not the consumer price index was purged of all biases. The loss of full inflation adjustments means that not only retirees but also the disabled, who might remain on the rolls for decades, would suffer steadily declining purchasing power. The plan also would boost income taxes, because the reductions in cost-of-living adjustments would erode the annual adjustments in income-tax brackets and the standard deduction, which together prevent inflation from raising tax rates.

Voluntary individual accounts would be poor substitutes for lost Social Security benefits. Unlike Social Security, which ensures income, pensions based on individual accounts would be subject to the risk of asset price fluctuations. The costs of keeping track of which workers contributed how much to which accounts in which years under the Moynihan-Kerrey proposal would eat up 20 percent to 40 percent of each worker’s potential benefits.

Closing Social Security’s projected long-term deficit will require some combination of benefit reductions or higher taxes, but the senator’s plan needlessly undercuts both the “social” and the “security” in Social Security.