A "Progressive" Solution for Social Security

In today's Wall Street Journal, Robert C. Pozen offers an interesting approach to easing America into personal retirement accounts. One of the big political dilemmas conservatives have is finding a way to minimize the Social-Security 'carve-out': the amount of money diverted from Social Security into personal accounts. The bigger the carve-out, of course, the more money has to be borrowed to continue paying current benefits and the greater the trouble Social Security has of remaining solvent. Pozen's idea is called 'progressive indexing':

Under the current Social Security system, the annualized career earnings of all workers are increased by the amount wages in the whole U.S. economy have risen over their careers. Under progressive indexing, by contrast, the average career earnings of all workers with over $113,000 per year would be increased by the amount that prices have generally risen over their careers.

In recent years, on average, wage increases have tended to exceed price increases, by about 1% per year. Under progressive indexing, high-earners would feel a strong push out of traditional Social Security, and into private accounts, since their benefits would increase only as rapidly as prices. Medium and small earners wouldn't feel that pressure, however, since their benefits would increase as rapidly as wages do, which would tend to minimize the carve-out.

Of course, if the U.S. ever hit a period of stagflation, wage increases could lag price increases. The pressure would then be in the opposite direction: people in personal accounts would clamor to be let back into traditional Social Security (like they are doing today in societies that have such a dual system: e.g., Chile and Britain).

But people couldn't get back into traditional Social Security: Pozen's idea is a one-way ratchet: skim the rich out of the current system, not only to weaken the current system but also in order to be free to label Social Security as a welfare program, weakening it yet more by removing public support, and leave the rich to their own devices when the market goes bad.

Perhaps Pozen's idea would merit consideration if people were free to move back and forth between Social Security and private accounts. That would certainly be more in harmony with Bush's slogan of an 'ownership society:' competition between government and the private sector over retirees' money, and free choices for all! But it's all a moot point anyway. Pozen's idea, as well as all other options suggested by conservatives, have only one one real aim: damage, and ultimately destroy, traditional Social Security!

Until conservatives get serious with the ideas they suggest for national consideration, there will be no negotiation: liberals have nothing to offer except contempt for such offerings.