First, we should switch from wage indexing to price indexing, but raise benefits more rapidly for those with low earnings. This would eliminate most of the long-term insolvency, but do so in a manner that leads to rapidly rising real benefits for people with low incomes, and more slowly for people with higher incomes.
Next, we should prospectively increase the retirement age in several decades slightly beyond that in current law, while maintaining a strong early retirement option. Combined with a partial improvement in the CPI (the BLS implementing its vastly superior chained-CPI, which would eliminate 30-40 basis points of the bias), these reforms will easily deal with the long-run solvency issues.
...suppose we have the Social Security reform described above (partial price indexing, retirement age, more accurate CPI) in place. Does anyone really believe it would make sense to dramatically increase benefits for future retirees and finance the expansion with a 50% increase in the payroll tax, especially given the impending larger problem in Medicare? That is what the opponents of Social Security reform are really peddling.
Boskin then argues that we could allow a personal retirement account component without any offsetting reduction in benefits. I think that what he is saying is that the reforms to benefits would reduce future Social Security obligations by enough to make it possible to cut payroll taxes and still have a solvent system. The payroll tax cuts would take the form of personal accounts.
For Discussion. Boskin says that a larger deficit to finance more private investment is not as harmful as a larger deficit to finance current government spending. Is that a valid point of view?