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A better fix than privatizing Social Security

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The president's determination to partially privatize Social Security stems from ideological reasons. But in fact the projected Social Security deficit is small enough - 1.89 percent of payroll, under the Social Security trustees' intermediate assumptions (neither optimistic nor pessimistic) - that a major revision to the system is not necessary. The deficit can be remedied with a few discrete changes in the program, all of which are surprisingly easy to understand and accept.

The first is to raise the earned income on which the Social Security payroll tax is assessed and benefits are paid. At present, the maximum is $87,900 a year, subject to annual indexing to wage growth. But it could be raised gradually over several years to 90 percent of covered earnings of individuals, from its current level of about 85 percent, and indexed thereafter. If that were done, the additional payroll tax paid by the 6 percent of those who earn more than $87,900 would reduce the long-range deficit by 0.61 percent of payroll.

A second proposal is to keep the tax on estates worth $3.5 million and more and dedicate the proceeds to Social Security. At present, the tax applies to estates valued at a minimum of $1.5 million. In 2009 the exemption rises to $3.5 million and the following year the estate tax is scheduled to end. Dedicating the tax on estates worth $3.5 million and over, and retaining it, would reduce the long-range deficit by another 0.6 percent of payroll.


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