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 The Right Questions on Social Security
 
 By Ruth Marcus
 
   Every once in a while, in a debate as dominated by partisanship and dogma as the current slugfest over Social Security, you run into someone whose views seem informed instead by facts and fundamental  principles. One such person came to The Post the other day in the slightly rumpled form of Bob Pozen, who arrived without  the usual ideological baggage or the entourage that trails your average corporate titan.
 
  Pozen is a registered Democrat who served on President Bush's Social Security commission and worked for a year, unpaid, as the chief economic adviser to the Republican governor of Massachusetts, Mitt Romney. He is a former vice chairman of Fidelity Investments Inc., the country's largest mutual fund firm, and is now chairman of  MFS Investment Management, which runs mutual funds. But surprisingly for someone from the industry, he doesn't see personal Social Security accounts as an end in themselves  --  "I'm not a big believer in the ownership society," he says  --  but as a "sweetener" to pave the political way for other, more painful changes to the program.
 
  Most of all, he approaches the Social Security debate asking the right questions: What can be done to put the system on a more solvent footing, and how can that be accomplished in a way that reflects the differing roles that Social Security plays among different income groups? Specifically, the one-fifth of Americans for whom Social Security is the sole source of income ought to be treated differently from those for whom Social Security benefits are merely the icing on a retirement cake composed mostly of savings and pensions. 
 
  Thus, in striving for solvency, Pozen is reluctant to raise the retirement age beyond the current plan, under which it will rise gradually to 67 by 2027. Although life expectancy is increasing, he notes, raising the retirement age would hurt those who engage in manual labor (and who tend to be among the lower earners) and who, age discrimination laws notwithstanding, may have a hard time shifting into less physically demanding jobs later in life. Similarly, he is wary of simply hiking the ceiling on the amount of earnings subject to Social Security taxation: Why, he asks, should those making between $90,000 (the current cap) and, say, $140,000 be hit with what amounts to a 12.4 percent extra tax on their earnings? 
 
 It's tempting to describe the Pozen approach as Bush Lite, because it shares many characteristics of  the president's preferred model, though that will surely damn it among Democrats. Perhaps a better phrase would be Bush Smart: Pozen's plan is less radical and more compassionate than the president's. It would let workers put 2 percentage points of the money they pay toward Social Security into private accounts, half of what the president proposes, and protect the benefits of those who need them most. 
 
  The personal accounts are supposed to be the "sweetener," though in the current political climate they may have a more bitter effect. But Pozen, brandishing a spreadsheet that shows historical returns from the 60-40 blend of stocks and bonds he proposes, views them as a reasonably safe bet. His argument against the alternative  --  having the government take advantage of the equity premium by investing in the market itself  --  does not show the usual mystical attachment to personal ownership or abhorrence of government influence over the markets. Rather, he expresses the pragmatic fear that pressure to eschew certain politically incorrect stocks and invest in others would yield diminished returns.
 
  The medicine is something called "progressive indexing," which would change the formula for calculating benefits in a way that shields those at the bottom, strikes a balance for those in the middle and takes the biggest bite out of the benefits of those best able to afford it. Currently, Social Security benefits rise along with the growth in real wages, which is fair in that it allows those who have retired to enjoy the same growth in living standards enjoyed by other Americans, rather than being pushed back to a far lower level. But it is also enormously costly. Shifting entirely from wage indexing to price indexing  --  setting initial benefit levels not by the rise in real wages over the retiree's working life but by the increase in the cost of living  --  would more than erase the entire $3.7 trillion shortfall that is projected in Social Security over the next 75 years. But benefits for all retirees would fall far below the level currently promised. Pozen would maintain wage indexing for those earning $25,000 or less (about 30 percent of workers), have a blend of both formulas for those in the middle, and switch entirely to price indexing for those earning above $113,000  --  an approach that, by itself, would cut the projected shortfall by two-thirds.
 
  One big downside of the Pozen plan is that it would  not achieve total solvency 75 years out; rather, given the extra borrowing that would be required to finance the shift to private accounts, it would whittle the shortfall by about half, to $1.9 trillion. Another major concern is the risk that personal accounts won't perform as well as expected, something that could be addressed by guaranteeing a minimum benefit to the lowest-tier earners. 
 
  Pozen's solution may not be optimal; it's certainly not perfect. But the insight of progressive indexing is worth taking seriously  --  and it has been: it's an element of the plans proposed by Republican Sens. Lindsey Graham (S.C.) and Robert Bennett (Utah). In an atmosphere too prone to braying over what must be left on the table or taken off, and too devoted to jostling for partisan advantage, Pozen offers the thoughtful voice of a Democrat not reflexively opposed to personal accounts, and a personal-accounts advocate motivated by the desire to save Social Security rather than implement a preconceived agenda.
 
 marcusr at washpost.com
 
   

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