A Response to the Executive Director of the President’s Commission to Strengthen Social Security

Peter A. Diamond and Peter R. Orszag
Peter R. Orszag Vice Chairman of Investment Banking, Managing Director, and Global Co-Head of Healthcare - Lazard

June 24, 2002

In response to our analysis of the plans proposed by the President’s Commission to Strengthen Social Security, Charles Blahous (the Executive Director of the Commission and a member of the White House staff) has circulated a response. This document examines and attempts to clarify the sources of disagreement between the Executive Director and us so that interested observers can better understand the debate.

The Executive Director’s memo makes four fundamental assertions: (1) that our paper inappropriately focuses on the standard measure used to assess Social Security solvency—the ability of the traditional Social Security program to finance its benefits over the next 75 years; (2) that, contrary to one of our key conclusions, the Commission proposals we analyzed dramatically reduce Social Security’s reliance on general revenue transfers from the rest of the budget to a reasonable and affordable level; (3) that the figures from the actuaries’ analysis of the Commission’s plans that we used to measure the expected retirement income from individual accounts underestimate the value of that income; and (4) that our comparison of benefit levels under the Commission proposals to the benefits scheduled under the current benefit formula is inappropriate because the benefits scheduled under the current formula can not be financed out of current-law revenue.

This note responds to each of those assertions. It is important to emphasize at the outset that the sources of disagreement do not generally arise from disputes over data. Both our analysis and the Executive Director’s response are based on the same set of actuarial analyses produced by the highly respected Office of the Chief Actuary at the Social Security Administration. The disagreements typically involve the interpretation and use of the figures produced by the actuaries, not those figures themselves.