RE: Sen. Gregg on the President's role

["Steven H. Johnson" <info@sscommonsense.org>]

Sen. Gregg makes several important arguments in his posting on 
morale boosting.

I applaud the hard work that he and others have done in shaping
the Gregg-Breaux/Kolbe-Stenholm et al proposal, and its more
recent variants, even though it's not my preferred strategy.

It's certainly true that the G-B/K-S approach achieves long-run solvency,
primarily by cutting the OASDI benefit flow from what is now forecast
to be about 19.9% of taxable payroll in 2075, to about 11.32% of
taxable payroll.

And with the returns on thrift savings accounts, the net loss to
participants in Social Security is not nearly as great as it would
be if there were no reforms.  If no reforms - and the payroll tax
stays at 12.4% (employee + employer), then benefits will ultimately have 
to be cut by roughly 35%.  In their proposal, making conservative
assumptions on real returns in the stock market, that cut is reduced
to perhaps only 15% or 20%.  It's a rigorous effort to do the
best possible job within the constraints of a 12.4% combined
payroll tax rate - plus maybe a little bit of cash subsidy thrown
in, just to make it easier for everyone to accept.

My preferred approach, outlined in my posting number 5, protects
retiree benefits at close to 100%, but does require a front-end 
subsidy over a 15 year period.

And Sen. Gregg correctly says that if we're to get to a workable solution,
the President's leadership is essential.  And notes, correctly, that
the President has not yet proposed a solution that delivers genuine
solvency.  

Getting the President's leadership on this will take informed public
pressure.

The American people need to understand, for example, the difference
between "actuarial balance" - which simply postpones the insolvency
date to the 77th year - and genuine solvency.

Genuine solvency in the Gregg-Breaux et al approach is achieved by
cutting the basic benefit structure rather deeply, until the long
run cost of the program is only a skosh (how do you spell skosh?)
above the payroll tax?

Genuine solvency in my preferred "fund the gap" approach is achieved
by accumulating a large enough pool of capital that the earnings from
that pool of capital are sufficient to make up the difference between
what comes in (not enough) and what goes out (more than Social Security 
has).  

In a "fund the gap" environment, genuine solvency means having a pool
of capital that's the same size in 2075 as it is in 2050.  If it's
65% of GDP in 2050, then, by gosh, it ought to be at least 65% of 
GDP in 2075 as well.

Or - if a range of cuts wind up being part of the ultimate solution -
but we're still depending on a pool of capital for help in funding
a somewhat smaller gap, then a pool of capital that's equal to 40% of
GDP in 2050 ought to still be a pool of capital that's equal to 40% 
of GDP in 2075.

If the public understands the true meaning of lasting solvency,
either in the Gregg-Breaux sense, or in the sense I've just outlined
above, and puts sufficient pressure on the President to come forth
with a proposal that offers genuine solvency, then maybe we'll
get off the dime and get a genuine solution that truly preserves
Social Security's long-run solvency.  

Steve Johnson.