I woke up the other morning to the screaming headlines, "Greenspan: Cut Social Security." Now, Alan Greenspan knows more about economics than Jack Kemp, but he was wrong to tell Congress that to make the nation's retirement program "solvent" and avoid raising taxes, Social Security benefits must be cut.
Making Social Security solvent is a contradiction in terms, and no amount of benefit cuts will ever make it solvent. Insolvency was sown into the very fabric of the tax-and-transfer Social Security program. No amount of tax increases or benefit cuts, or any combination of the two, can ever make Social Security solvent. Trying to do so will only damage the economy and reduce the retirement income of America's senior citizens, neither of which is acceptable.
The only way to ensure the solvency of America's retirement system and guarantee workers a higher standard of living when they retire is to make every worker an owner. Transform Social Security into a pre-funded private investment program and finance it by allowing workers to place at least half the current payroll taxes into personal accounts, to which they have full ownership rights. The chief actuary of the Social Security Administration, Stephen Goss, recently scored a plan published by the Institute for Policy Innovation that meets all of the above criteria - large personal accounts, no tax increases, no benefit cuts - and concluded that workers owning large personal accounts would receive nearly 60 percent more in retirement benefits than Social Security currently promises.
It is a fallacy to believe, however, as Greenspan and some other "fiscal conservatives" apparently do, that the current retirement system can be made solvent first, by cutting promised benefits or raising taxes before workers are permitted to save half of current payroll taxes in personal retirement accounts.
The only sensible way to restore solvency and cover the temporary added cost required to pay full benefits to current retirees while diverting half the payroll tax into personal retirement accounts is to slow government consumption and borrow prudently for a short period of time.
Greenspan suggests America's senior citizens pay for making Social Security solvent by lowering their standard of living. In fact, America's politicians should pay for the mess they have made of the nation's retirement system by slowing the government's consumption of the wealth America's workers create - cut other government spending, not Social Security benefits.