Alright, since all the cool kids are doing it, let's try to design a policy that shores up Social Security's long-term deficit.

Back before the election, while still a Mother Jones intern, I did a wonky little series examining at Bush's second-term agenda. The very first article tackled Social Security privatization, touching on all the current liberal talking points: Private accounts won't cure insolvency, the system's not in "crisis", and the general budget deficit is the real problem. I still believe all that, obviously, and still support the insurance aspect of Social Security. I like the fact that it rewards work (a higher lifetime income means a higher benefit check) while still providing a safety net. I like that it's not means-tested, which has helped it maintain support among the middle class. All told, it's a healthy and successful program.

Still, as we think about how to shore up the program's finances over the next 75 years, I'd start by recommending these four little tweaks.

1. Put all state and local employees into the system. At the moment, 3.7 million such employees pay no payroll taxes, even though many of them end up receiving Social Security benefits anyways—since they eventually leave government. So they should be paying into the system all along. This change should be uncontroversial, and closes about 11 percent of the 75-year deficit. (All estimates according to this SSA report.)

2. This one's bloody, but pretty effective, I think. Pass some sort of immigration amnesty (or "amnesty") bill to get illegal immigrants paying into the system. President Bush's immigration proposal is a good start, giving all illegal aliens "temporary worker" status. We can debate the details, but the point here is that about 8 million illegal immigrants working in America don't contribute much in the way of payroll taxes right now. Giving them temporary status would boost revenue at minimal cost. And since the U.S. has never signed a totalization agreement with Mexico, we wouldn't ever have to pay out benefits to those Mexican retirees who have worked here for a few years. (We can debate totalization later.)

Moreover, Bush's plan—unlike the SOLVE Act proposed by Rosa DeLauro and Ted Kennedy—also sets no limit on how many temporary workers can enter this country, so it would probably boost total immigration even further. That's good for Social Security.

3. Invest 40 percent of the Trust Fund in a broad index of equities. This suggestion was first pioneered by Robert Ball, I believe. The Social Security surplus is currently invested in no-risk Treasury securities, and the theory is that by investing some of that suprlus in stocks instead, you can earn a greater return (and the government can absorb the risk).

The objection here—that the government would then have control over Corporate America—seems entirely trivial. We could simply bar Social Security-held stocks from voting. The investments, meanwhile, could be controlled by an independent Investment Policy Board, just like the Federal Employees Thrift Plan does, under various well-defined standards. This is no different from what the Federal Reserve Board or the Tennessee Valley Authority do. Government entities are perfectly capable of investing their holdings in the stock market.

Now if there really is an overly-high equity premium (i.e. stocks really have better risk-adjusted returns than treasuries in the long run), then the program can cut its long-term deficit by anywhere from 42 to 55 percent. More importantly, doing this keeps Trust Fund revenue out of the hands of the federal government, which currently just spends the Social Security surplus. That should force Washington to decrease the deficit.

4. Index benefits to a "smarter" cost of living index. As soon as you retire, initial benefits are calculated. These benefits then rise every year with the CPI—the usual inflation index. But this measure overstates increases in the cost of living each year—"Adam O'Neill" estimates by as much as .5 percentage points. There's no reason not to fix this. Notice this would not affect the way initial benefits are calculated, though it means a person's benefits never rise in real terms. It's also a progressive change, favoring those who live shorter lives. This would cover 40 percent of the deficit.

So add all those up and we've just closed the 75-year deficit—and maybe done better depending on the effects of the immigration proposal and returns on the stock market. After that, I think we can wait and see how we're doing. If things still look bleak after a few years, then I think we can add in a modest set of benefit cuts or tax increases. For instance, right now the payroll tax is paid only on the first $87,000 of wages. That ceiling could be raised rather modestly. We could also change the wage indexing formula slightly (see Adam O'Neill's option #2 here), so that the system becomes a little more progressive, although this would amount to a modest benefit cut. Or we could increase from 35 years to 38 years the period over which average indexed wages are calculated, which forms the basis for computing benefits (this would also amount to a slight benefit cut.) See here for all the possible solutions and their effects on the shortfall.

Okay, now there are a few improvements and add-ons I'd like to see made to the system. These will add slightly to the cost, no doubt, but with the tweaks above I think we can get to balance pretty easily.

1. Near and dear to my heart, fix the disability guidelines. I've got a longish post on MoJo explaining some of the problems with the current SSDI program. Suffice to say, it could be more generous. There would certainly be benefits here—Elizabeth Warren has estimated that better disability coverage could help as many as 300,000 families avoid bankruptcy every year. And it's not overly costly.

2. A modest benefit enhancement for minimum-wage workers, so that those workers with at least 35 years of covered and steadily rising earnings would receive a benefit level equal to the poverty line or above. (Diamond-Orszag have something along these lines.)

3. Increase the benefits for elderly survivors. Widows too often suffer a drop in living standards of around a third when their husband kicks the bucket. This could be done progressively, and again, Diamond-Orszag suggest one way to do it. Low-income widows could be supplemented from the system's funds. For higher-income couples, the survivor's benefit would be financed by reducing the couple's combined benefit while both are alive.

And then, only then, do we start talking about private accounts. Brad DeLong has some good suggestions along these lines.