The economy is growing. Inflation is well under control. The budget is moving into surplus. And this economic strength has shrunk the Social Security deficit. Now is the time to close it completely.
President Clinton’s proposal to allocate part of the projected Federal budget surpluses to Social Security reserves, and to invest about 15 percent of the reserves in private securities, would close nearly two-thirds of the projected long-term deficit. It is important for Congress to approve the President’s plan because it would boost our national saving and help restore long-term financial balance to the Social Security system.
But additional measures are necessary to assure Social Security’s solvency for the next 75 years. Along with such well-known Social Security experts as Henry J. Aaron, Robert M. Ball, Peter Diamond, Robert Greenstein and Alicia H. Munnell, I urge Congress to adopt two further changes to meet these goals.
First, Congress should raise the Social Security tax ceiling on the American wage base to cover 90 percent of total earnings, instead of the current 86 percent.
Subjecting a greater portion of our wages to Social Security taxes would increase payroll-tax revenues by about 4 percent.
Second, the Social Security trustees should invest a portion of the reserves in bonds issued by Federal agencies like the Government National Mortgage Association (Ginnie Mae), as is permitted under current law.
These bonds are completely safe because they are guaranteed by the Federal Government, but they have higher yields than Treasury securities now held by the trust fund. It would be prudent as well to invest a small portion of reserves in high-grade corporate bonds, which are also safe and yield more than United States Government bonds.
There are some other, more politically risky reforms that Congress should consider. These measures include using a more accurate cost-of-living index (which is now being developed by the Bureau of Labor Statistics), extending Social Security benefits and taxes to newly hired state and local employees in states that are currently outside the system, increasing the period used for calculating average earnings and speeding up an already scheduled cut in benefits by raising the age at which full benefits are paid.
This last provision would continue to permit workers to claim reduced benefits as early as age 62. In addition, small payroll-tax increases and benefit reductions could be enacted now to take effect well into the next century, if needed.
Still, the President and Congress should not permit possible disagreements about these additional reforms to stand in the way of the immediate priority: to close completely the projected long-term deficit in Social Security by increasing the taxable wage base, investing part of the reserves in higher-yielding Government-guaranteed and high-grade corporate bonds and implementing the program outlined by President Clinton in his State of the Union address.
The President and Congress must stand firm against fiscally rash privatization proposals, especially those that would boost administrative costs and depend on permanent transfers of general revenues to private accounts, even after budget deficits return, as projected. Instead, they should seize this opportunity to assure American workers that Social Security will continue to provide basic income support in the 21st century.