A Summary of Saving Social Security: A Balanced Approach

55 Pages Posted: 20 May 2004  

Peter A. Diamond

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Peter R. Orszag

Lazard Asset Management

Date Written: May 2004

Abstract

This paper reviews the financial position of Social Security, presents a plan for saving it, and discusses why Social Security revenue should not be diverted into individual accounts. Our approach preserves the value of Social Security in providing a basic level of benefits for workers and their families that cannot be decimated by stock market crashes or inflation, and that lasts for the life of the beneficiary; it increases benefits for some particularly needy groups such as those who have worked at low pay over long careers and widows and widowers with low benefits; it eliminates the long-term deficit in Social Security without resorting to accounting gimmicks, thereby putting the program and the federal budget on a sounder financial footing. Our plan combines revenue increases and benefit reductions - the same approach taken for reaching a consensus in the last major Social Security reform in 1983.

Keywords: Social Security, actuarial balance, individual accounts

JEL Classification: H550

Suggested Citation

Diamond, Peter A. and Orszag, Peter R., A Summary of Saving Social Security: A Balanced Approach (May 2004). MIT Department of Economics Working Paper No. 04-21. Available at SSRN: https://ssrn.com/abstract=544244 or http://dx.doi.org/10.2139/ssrn.544244

Peter A. Diamond (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-344
Cambridge, MA 02142
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617-253-3363 (Phone)
617-253-7804 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-253-3363 (Phone)
617-253-7804 (Fax)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Peter R. Orszag

Lazard Asset Management ( email )

30 Rockefeller Plaza
New York, NY 10112
United States

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