It's a good bet that if you analyze a problem incorrectly, you'll come up with the wrong solution. Case in point: George Bush and Social Security.
The first problem is one of semantics. Social Security is not running out of money. If nothing is done, inflation-adjusted benefits might wind up being 27 percent less in 2050 than they are scheduled to be, but still wind up higher than they are today. Undesirable, maybe, but hardly economic calamity.
 
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Nor does America need to worry about becoming an "ownership society." More of us own houses and financial assets than ever. But with a national savings rate near zero, what we urgently need to become is a "savings society."
Pay no attention to false claims by Vice President Cheney and others that Social Security offers a measly 2 percent return. Social Security isn't a pension system -- it's a cross between a pension and a pay-as-you-go social insurance program. As such, there is no calculable rate of return.
Finally, it is simply a big lie that increasing any tax on anyone will cripple growth, a myth recently peddled by Cheney in a Georgetown University speech. Social Security taxes have been raised 20 times since 1935 -- a period during which the United States became the world's economic superpower.
Democrats, of course, have their own analytical blind spots, beginning with the patronizing assumption that low-income Americans don't know how to invest their savings, or can't learn. That may have been true a generation ago. In the context of a program with a handful of conservative investment options, it need not be true today.
My own analysis starts with the hybrid character of Social Security, which has outlived its usefulness.
As a society, we still need a federal program that guarantees retirees do not live in poverty, no matter what they made or how long they live. That's the social insurance part.
We also need to ensure that all workers have a shot at a middle-class lifestyle when they retire by participating in the "private accounts" we've had for years -- employer-sponsored pension plans. Employers and employees now must contribute to workers' compensation and unemployment insurance. Now it's time for the world's richest country to add pensions to those mandated benefits.
So here's a modest proposal I'll call the 10 percent solution:
First, make Social Security into more of a pure-play, pay-go social insurance program. Lower the tax rate from 12.4 to 10 percent, evenly divided between employer and worker. Raise the taxable income limit from $90,000 to $120,000. Increase the retirement age to 68 by 2050. Then, gradually restructure benefits so they replace about 90 percent of taxable income for those at the bottom (it's 57 percent now), 36 percent for those in the middle (vs. 43 percent) and 18 percent for those at the top (vs. 36 percent).
Second, require all workers to contribute at least 2.5 percent of pay to a company-sponsored pension plan, with a minimum 2.5 percent employer match, with additional voluntary contributions of up to 10 percent of pay. For low-income workers, reimburse all or some of their contributions through a refundable tax credit, financed by the extra revenue that will eventually be generated by increased pension account withdrawals in the future.
Such a scheme would use existing, road-tested mechanisms to increase national savings and retirement income, strengthen the safety net, enhance generational equity and fight the tide of rising income inequality.
As important, it would level a competitive playing field that now tilts against retirement savings. For companies and workers already contributing 5 percent to a 401(k), or a traditional defined-benefit pension, this scheme would effectively lower payroll costs by that amount. At the same time, it would raise payroll costs for companies and their workers who now shirk retirement obligations.
The dirty little secret is that it is pretty easy to come up with an actuarially sound plan to "fix" Social Security. The real challenge is getting politicians to take off their ideological blinders and stop playing the issue for partisan advantage long enough to adopt one.
Steven Pearlstein can be reached at pearlsteins@washpost.com.
