Noam Scheiber is bashing John Kasich’s New York Times op-ed (registration required) on Social Security. He likes Kasich’s idea of changing the formula for calculating benefits so that it rises with prices rather than with wages–a change that would solve Social Security’s long-term solvency problem. What vexes Scheiber is that Kasich also supports private accounts.
“[I]f you allow today’s workers to divert 25 percent of their payroll taxes into private accounts, cutting the benefits they’re promised won’t help you pay for it one bit. We were never counting on their payroll contributions to fund their own benefits; we were counting on their payroll contributions to fund the benefits of current retirees (and near-retirees)–benefits which, in the very next paragraph, Kasich promises not to cut.
“In effect, Kasich has spent the first seven paragraphs of his piece proposing a very reasonable way to save Social Security several trillion dollars, which would basically make it solvent. Then, in the final two grafs, he’s proposing something that would cost several trillion dollars, which would immediately undermine the earlier proposal and leave Social Security in just as bad (probably worse) financial shape than when he started.”
If you think about Social Security’s solvency over the long run, then it does indeed make sense to cut the traditional benefits for today’s workers in return for giving them investment options. It would be politically smart to fix the solvency problem as much as possible that way, and to rely as little as possible on changing the benefits formula.
But solvency isn’t the only thing worth looking at. Social Security also offers young workers today a bad deal, and cutting benefits (or raising taxes) would make that problem worse. For Kasich to propose cutting benefits and then giving young workers something to compensate for it is not absurd, and no shell game (even if I am not sold on the particular mix of policies he is recommending).