Social Security Reform in the Twenty-First Century

The paper reviews the history of the Social Security system in the United States in the twentieth century and discusses options for the twenty-first. Because of the steady aging of the U.S. population and the impending retirement of the large baby boom cohort, the Social Security program now is in long-term actuarial deficit. The standard twentieth century approach to this actuarial deficit would be to raise payroll taxes enough to pay for anticipated future benefit increases, but for several reasons that approach may not be so popular this time around. The author's preferred approach is a gradual trimming of long-term benefit growth, plus "add on" individual accounts to provide new saving, for the economy and for the retirement system. The paper also criticizes proposals for Social Security reform made by President Clinton and a committee appointed by President Bush, generally because these proposals do not provide enough new saving.