5 Ways to Reform Social Security

The spectre of insolvency is troubling, but all reform options present serious drawbacks.

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Raising the Payroll Tax Cap

Currently, only the first $106,800 of annual wages are subject to the payroll tax. Raising that cap and having high earners pay a larger share into the system could help to close Social Security gaps. The political problem with this option is similar to that with means-testing: it's redistributive, albeit in a different way. As there is a cap on Social Security benefits, this would mean that some people could wind up paying much more into the system but receiving the same benefits as other, less-wealthy beneficiaries.

Privatizing the System

This is one of the only concrete ideas that any candidate put forward during the Republican Tea Party presidential debate this week, in which Herman Cain and Newt Gingrich both advocated optional personal accounts. Morrissey believes that this option, however, is not viable. "In general, the private account thing has been pretty much discredited," she says, pointing to President George W. Bush's unsuccessful attempt to partially privatize Social Security. The logistics of changing over to such a system are also problematic, to say the least. "If people were allowed to invest that money themselves, privately, they could get a higher rate of return. That's true, of course," says Viard. "The flaw, of course, is what happens to people who are retired now?" he says. As current workers' payments into the system go to current retirees, a shift to privatization could hurt those beneficiaries. Recent sharp losses in the stock market have also cut into the popularity of such an approach.

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