Ironically, however, one of the main purposes of their fiscal imbalance measure is to support privatization.
Suppose...a person’s Social Security benefit is reduced one dollar in present value for each payroll tax dollar that the person is allowed to invest in his or her personal account. The retirement benefits of those who participate in such a system would consist of reduced traditional Social Security benefits plus income derived from their personal account assets. But to pay current retiree benefits, the federal government would have to borrow an additional dollar for each dollar invested in a personal account rather than paid to the government as payroll taxes. This would drive up annual deficits and public debt. Under traditional accounting, therefore, this reform does not look favorable.
In economic terms, reducing payroll taxes and future benefits by equal present-value amounts is a wash. The fiscal imbalance measure reflects this economic treatment.
My initial reaction to their fiscal imbalance measure is that it makes sense. The concept is to take the present value of future government obligations under current law and subtract the present value of future tax receipts under current law to arrive at the measure.
However, one of the sensitivity analyses that they conduct gives results that I find confusing. They say that if productivity growth were higher, this would raise the fiscal imbalance in Medicare "because greater productivity growth also occurs in the Medicare sector." It seems to me that they assume that Medicare payments are driven by wage growth, which may be a reasonable way to do a forecast but strikes me as a peculiar approach for sensitivity analysis.
For Discussion. Under the fiscal imbalance measure, privatization neither bankrupts Social Security nor saves it. Does that mean that both Democrats and Republicans will seek to suppress this study?