Common Sense on Social Security

A Centrist Perspective on the Social Security Reform Dilemma

Social Security Reform: Breaking the Stalemate

Section 14. A Multi-Stakeholder Rating Test

The various parties to the Social Security stalemate have defined a number of criteria by which any proposed solution ought to be measured.

The Republicans want a solution that protects retiree benefits as much as possible, harnesses the power of compound interest, and raises the rate of return for future participants in Social Security. They also want to promote the habit of saving and investing among all Americans. At the same time, they don't want the Trust Fund to gobble up huge chunks of the stock market.

Meanwhile, the Democrats also want a solution that protects retiree benefits. Any acceptable reform must defend Social Security's progressive principles and benefit structure as well. Individual retirees shouldn't be put at the mercy of the stock market, but it might be all right to let Social Security benefit from the stock market's higher rates of return.

Democrats and Republicans concur on taxes and subsidies. The payroll tax shouldn't be raised, and a permanent federal subsidy would be wrong. If a temporary subsidy is required, it must be as affordable as possible.

Ordinary Americans have also made their wishes known. They want a solution that protects Social Security's long-run solvency without jeopardizing their retirement benefits. They don't want to raise the payroll tax. They don't want to add new layers of risk.

Taken as a whole, it's been a tough set criteria to satisfy. Republicans haven't given the Democrats' proposals very good ratings. Too much ownership concentration. Democrats haven't given Republican proposals very high marks. Too much individual risk. Nor have ordinary citizens seen anything they've liked. All the options seem so unpalatable. Sharply reduced benefits? A steeper payroll tax? Permanent federal subsidies? High risk savings strategies? Small wonder nothing has clicked with the American people.

Meanwhile, the clock is ticking, the calendar melting away. Partisanship isn't working. It's time for a bipartisan compromise.

The centrist compromise, a two-track savings strategy, earns high ratings on each of the key criteria, and merits serious consideration from the public, from both major political parties, and from the full spectrum of interest groups and reform parties. It comes in second on the affordability test. It does more than protect Social Security from insolvency; it secures Social Security's lasting solvency. It protects retiree benefits quite well over the long haul. It adheres to Social Security's progressive tradition. It holds the line on the payroll tax. It promotes a spirit of saving and improves Social Security's rate of return. It minimizes PRA risks; it minimizes ownership concentration risk. With Social Security showing a cash flow surplus for another fourteen years, the Two-Track Savings Strategy asks the federal government for a finite, fourteen-year cash infusion, one that is substantially more affordable than the subsidy President Clinton proposed.

No other option rates as well against the scoring criteria that are most important to the GOP, the Democrats, and the American people. The two-track, Trust Fund-plus-PRA combo is the option around which an effective, stalemate-breaking solution can most easily be built.

Section 15. One Program, One Decision

The nation is being called to make its decision. One decision. Baby Boomers begin to retire soon. The fat years of surplus are slipping away. The American people, the President, and the Congress are being tested. What is the nature of the decision that we should all make together?

In ancient Egypt, a man named Joseph once served as counselor to the Pharaoh. A prudent kingdom, he cautioned, uses its years of surplus to store up wealth against the lean years to come. The Pharaoh took Joseph's advice, and his citizens were protected when the lean years arrived. Are we as prudent?

Thanks to Social Security, we shall soon find out.

copyright 1999 by Steven H. Johnson

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Common Sense on Social Security
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Copyright 1999
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Revision Date April 13, 2006