SOCIAL SECURITY

February 2005
		President Bush's call for reforms to Social Security is part of a broader philosophical effort to promote an "ownership society" in the United States. Dinesh D'Souza of the Hoover Institution at Stanford University and professor Jacob Hacker of Yale University answer your questions about the philosophical differences in the Social Security debate. Special Report: Social Security Reform

Forum Introduction After we baby boomers die off will the imbalance of workers to retirees correct itself? Why not just pay out less to those who have high assets? Why not just have the SSA invest a percentage of the current contributions in index funds? What happened to the "lockbox" idea? Has the Social Security trust fund been used for other purposes?	Anthony Santagato of Jamaica, N.Y. asks: I would like to know why -- instead of considering the creation of personal investment accounts that may have a high degree of risk and possibly no real solution to the shortfall -- a look at how the system pays out is not at the top of the agenda? Why not pay out less to those who have high assets in order to offset any deficit problems? Jacob Hacker responds: You ask a great question. Historically, Social Security was never seen as a welfare program in which recipients would have to undergo an income test to participate. But the program has always given a better deal to lower-income workers than to higher-income workers (and, less often recognized, it has also provided hugely important protections to unfortunate workers who are disabled or die before retirement). Put another way, the program is "progressive" -- it redistributes in favor of lower-income workers. This redistribution, however, takes place in a universal program that is very popular. Indeed Social Security is that rare breed: an antipoverty program almost everyone loves. So the program already does give less to higher-income workers relative to what they pay in. And it could be made even more progressive with relatively simple changes. For example, the payroll tax is slightly regressive because it only covers payroll up to $90,000. (It also, of course, only covers payroll-non-wage income like capital gains is excluded.) Raising that $90,000 cap would automatically increase the progressivity of the program, and it would improve the program's finances. (Indeed, eliminating the cap would fix Social Security's financial problems for at least the next 75 years.) I think raising the $90,000 cap should be on the table, and I was happy to hear Federal Reserve Chairman Greenspan say the same in his remarks before Congress. It should be noted, however, that there is a real political issue here. Raising the cap (or making Social Security more progressive in other ways) will make Social Security a worse deal for richer workers. But a modest increase in the cap, in my view, would not only be fair (since these workers experienced most of the income gains of the last 20 years), but also politically doable. Dinesh D'Souza responds: From an economic point of view, your idea makes sense. But from a political point of view, it doesn't. That's why progressives, who are otherwise so eager to "soak the rich," never propose eliminating Social Security for the rich and upper middle class. The reason is that for half a century they have promoted this not as a redistribution program, which in part it is, but as a way for all citizens to have a baseline retirement income, which is also a feature of Social Security. But to pay little or nothing to more affluent citizens is to dispel the illusion that we are saving for our retirement and to make it clear that many Americans are being asked to save for other people's retirement.