1. Should Social Security benefits for retirees be cut, either in the near-term or when the trust fund runs out of money, in order to shore up the fund?

First, I would note that if Congress fails to act, then when the trust funds run out of money, Social Security will not have the budget authority to pay full benefits. So inaction will lead to benefit cuts in the next 15-20 years. This would represent a significant policy failure and leadership failure on the part of our elected officials. We need to take actions today to avoid that outcome.

As for cutting benefits today: I have always believed that individuals who are already retired or who are just a few years away from retirement should not have their benefits reduced. Too many of these individuals made lifelong plans on the basis of a promise of these benefits, and too few of them have ways to make up for any lost income.

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There are two exceptions to this general rule that I would consider, however. First, I am among those economists who believe that we should be open to using a different measure of inflation to set the annual cost-of-living adjustment in order to better reflect true price inflation. But I would do this primarily to be more accurate, not as a cost-cutting measure per se. However, it would likely have the benefit to the program's solvency of slightly reducing future costs.

Second, I am also open to slightly trimming benefits for those for whom Social Security represents a small fraction of their income in retirement. This could be done, for example, by subjecting a bit more of their Social Security income to the income tax. This would only affect the highest income among us, and the revenue effects would be small. But I am open to it as part of a package of reforms.

What I would favor, however, is reducing the rate at which benefits are expected to grow for future cohorts of retirees. One of the policies recommended by the Social Security commission (on whose staff I served in 2001) was to slow the rate of growth of initial benefits by linking to prices instead of wages. Had we done this a decade ago, Social Security would be on a permanently sustainable path today. It is still a powerful tool. Some called this a "benefit cut," but I think that terminology is misleading because every future retiree would get the same benefit – adjusted for inflation – as a comparable retiree today.  Under current law, such individuals would get more than that, but current law is leading the system to financial distress.

2. What changes, if any, should be made to the Disability Insurance program for Social Security, given that the DI trust fund is predicted to be depleted by the end of 2016?

Let's be perfectly clear that any changes to the DI benefits or eligibility will be too little, too late to keep the DI program solvent. So we are going to have no choice but to divert revenue from the retirement program to shore up the DI program. I only hope that when Congress does so, it also recognizes the need to rethink how the system is structured.

3. Should more affluent retirees be exempt from collecting Social Security?

When Franklin Roosevelt set up the system, he wanted everyone to pay in and everyone to receive a benefit. He understood that this would make it a social insurance system rather than a welfare program, and that this was important for the political sustainability of the system. Indeed, he said he wanted it this way so that "no damn politician" could ever undo his system! Thus, the risk of exempting a group is that it could ultimately lead to the unraveling of the system. Further, it is important to understand that more affluent retirees already get the worst deal out of the system. If you exempt them during their working life, then that could actually hurt rather than improve system finances. If you make them pay taxes but give them no benefits, then it operates like a pure tax and would have all the efficiency losses to the economy that pure income tax would.

So, no, I don't think they should be exempt. Having said this, I am all in favor of tilting any reforms to be harder on the affluent so that we can protect lower earners to a greater degree.

4. Given the current strength of the stock market, do you think workers should have the option of investing the part of their paycheck deducted for Social Security into a private mutual fund, much like a 401(k), before they can collect payments?

I favored this idea a decade ago, but the best economic rationale for it – that it would make it more likely that we would save the Social Security surpluses rather than spend them on a larger government and thus boost national saving – is now a moot point because we no longer have Social Security surpluses. I never bought into the idea that the main reason to do personal accounts was because of the difference in rates of return. Indeed, that argument shows a fundamental misunderstanding of two issues: (1) the structure of the pay-as-you-go system and the fact that any money diverted to accounts would need to be replaced with tax revenue to pay current beneficiaries, and (2) the basic finance principle that extra returns are compensation for extra risk – there is no free lunch.

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5. Should a portion of Social Security Trust Fund assets be invested in stocks rather than Treasury bonds?

No. First, it accomplishes very little – any extra expected return is just compensation for the extra risk – there is no free lunch. Second, it opens up opportunities for political shenanigans because government accounting does not deal well with risk. A dollar today invested in stocks is worth the same as a dollar today invested in bonds. Despite this, my fear is that we would then use this portfolio choice to make the future liabilities look smaller than they are. This is exactly the problem with state and local plans, and it has led to their current distress. Third, I am also concerned about federal government interference in investment decisions. I don't want politicians on the left or on the right seeking to invest in their favorite firms or avoid firms that they dislike.

6. At what age should people be able to collect Social Security?

The average length of time someone spends in retirement has increased by about 50 percent over the last half a century. I think it is essential that we consider raising both the early entitlement age and the full retirement age. The key is to phase-in changes gradually over time so as to avoid shocking the system, much as they did in 1983 with the changes that increased the full retirement age from 65 to 67 over many decades (indeed, we are still in that transition).

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