The Case for Social Security Reform

Social Security might be special, but it is not unique. It collects money and spends money, just like the rest of the federal government. And like the broader budget, smart people are beginning to worry that we can't afford it, due to the rising gap between revenues and spending in the next few decades.

So there's a good case that we should not try to fix Social Security's projected shortfall by changing Social Security. Instead, we should try to fix the entire federal budget, of which Social Security comprises 20 percent. This makes sense. It's like saying that the federal budget is an overweight individual and that Social Security is his lower back pain. You can fix the lower back pain alone with chiropractic surgery. But if you change the individual's diet and exercise, you can fix the lower back pain and all of the other maladies associated with obesity ... and leave the chiropractor out of it.

My take: let's call the chiropractor. Fair and phased-in Social Security reform won't fix the government's larger bloated debt problem. But it would be an important start that demonstrates the United States' willingness to make small sacrifices to our future entitlements and paves the way for even more important reforms to Medicare and the tax code.

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Reforming Social Security might be painful, but there is no pain-free way to wean the country off its debt diet. On defense, slimming the Pentagon will be emotionally scarring for war hawks, but much more importantly, it will be economically harmful for cities and companies who rely on military spending and contracts. On tax policy, higher taxes will punish things we think are good: income, investment, business profits, amassed wealth. Lower tax expenditures will also punish things with loud constituencies: home owners, families with health insurance, charities, and so on.

Curbing medical inflation is both essential and inevitable, but it will hurt, too. One quarter of the new jobs created over the next ten years will be in the health care and social assistance industry, according to BLS projections. In the following decade, that number might be even higher. If we slow health care costs by cutting reimbursements, eliminating administrative bloat, or rationing, we'll spare the country from vertiginous debt, but we'll also probably choke off profit margins, compensation pools, and job openings.

Social Security isn't unique. It taxes something we think is good (wages) to pay for something we also think is good (seniors' benefits), just like the rest of the federal budget. We're not going to find a full-body solution to our debt problem in December, or in 2011, or in 2012. We should not even try. But we have to start somewhere. Let's start with the backbone.