Tuesday, March 17, 1998

Moynihan puts privatization on reform agenda

Perhaps his precise formulation won't thrill the hearts of all those who want to privatize some portion of Social Security, but Sen. Daniel Patrick Moynihan's acceptance of some elements of the idea is hugely important and may be seen later as a major step in the system's conversion and salvation.

The senator's nod, made in a speech at Harvard, is important because he is Mr. Social Security, as expert about the New Deal program as anyone in politics, and heretofore opposed to that sort of change. That he is a liberal Democrat is crucial, too, for privatizing Social Security -- mainly pushed by conservatives and a handful of Republicans -- is politically possible only with bipartisan endorsement.

Under Moynihan's plan, the payroll tax that funds Social Security would be cut from 12.4 percent to 10.4 percent in a couple of years. Workers would be encouraged to invest the difference in savings accounts, although they would also be allowed to spend the money any way they liked. He would also cut cost-of-living increases, hike the retirement age a couple of decades out, and also start increasing the payroll tax again about the same time.

Most of those wanting personal Social Security accounts would require that a portion of the payroll tax go for the purpose, not simply permit that use. The mandatory investment in stocks and bonds would bring about a return that would then help keep benefits more nearly intact without unaffordable tax increases. When baby boomers start retiring about 2010, the current pay-as-you-go system will be unworkable unless Congress votes for either drastic alterations. The alternative is a degree of private investment.

The proposal sounds radical to some, but isn't. It has been tried in Great Britain, for instance, and has worked well -- and many people in the United States already believe they have private accounts that have somehow been invested, which just isn't true.

Even though Moynihan is only halfway on board, the fact that he has at least mounted the gangplank almost certainly means the proposal will now receive a serious hearing.