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Last year, the Social Security Trust Fund paid out more than it received in tax revenue. By 2039, the Congressional Budget Office projects that the trust fund will be exhausted, at which point either benefits will have to be cut by 20 percent or taxes increased by 25 percent.

We’re likely to encounter problems well before 2039. In a few more years, the reserves of the fund will begin being drawn down as payouts increase beyond the combination of tax revenues and interest income. Between then and 2039, $2.5 trillion in government securities will have to be sold on a global bond market whose ability to absorb U.S. debt is already straining credulity.

Deficit doves, like the Brookings Institute, tell us there is no reason to worry and that there is plenty of time to tackle the problem. These assurances are no more credible than those of the teachers unions, who tell us our schools are doing great. Social Security is like the Titanic — it will not stop and turn on a dime. If we are to avoid crashing into the icebergs before us, we must begin turning the rudder now.

Social Security is primarily old age insurance. And as insurance, it gets the most bang for its buck when it insures against very old age, focuses on the first dollars of retirement income, and is sufficiently solvent to guarantee, beyond a doubt, that it will be there for future retirees.

A good reform proposal, therefore, might be the following: Make up half of Social Security’s shortfall by raising the retirement age to 70, and push the program into surplus by reducing benefits for the top 70 percent of earners. A bad reform proposal would involve pegging the rate of increase in benefits to a lower-than-inflation rate — changes like this would fall harder on the very old than the merely old. There are many ways to do the math — the conservative preference should be toward raising the retirement age and cutting benefits for the non-poor.

Beyond the immediate steps that are necessary to bring Social Security back into solvency, Republicans should also seek to improve the rate of return on the Social Security Trust Fund. A dollar invested in the Trust Fund in 1940 would have grown to roughly $225 today. That same dollar, invested in the S&P 500, would have grown to $1500. The problem is not just one of having less money to hand out to our elderly — by turning the Trust Fund into a captive customer for Treasury bonds, the interest on our debt has been kept artificially low and fueled the discretionary spending binges that have gotten us into our current mess.

One solution is to convert Social Security into individual accounts. Sadly, this policy will not be a viable option this time around. In 2005, on the heels of George W. Bush’s re-election, the GOP made a push to mend our broken Social Security system. At the heart of their proposal were individual savings accounts. Individual savings accounts held two significant advantages over the existing system. Firstly, they removed much of Social Security’s bias against shorter-lived demographics. Secondly, they allowed for the investment of Social Security funds in higher-yield assets than government bonds.

The fixes were torpedoed by Democrats, who managed to scare the elderly into thinking their overly generous goodies were being touched, convinced the demographics that stood the most to gain from the reform — blacks and Hispanics — that Republicans were out to get them, and riled up their reflexively anti-free-market base with the word “privatization.”

The battle for individual accounts has been lost. Republicans, as they craft their reforms, are going to have to avoid making individual accounts a component of the new system.

If private accounts are taken off the table, we are left with one option for improving yield and avoiding the temptation to spend the Trust Fund’s bond-buying fuels: The Social Security Trust Fund should be transitioned from a creature of the Treasury Department to something more closely approximating a sovereign wealth fund, free to invest wherever the gains are deemed the highest.

The challenge inherent in giving the Trust Fund the freedom to invest in the highest-returning assets is that their decisions could be politicized. Michigan representatives will argue that the fund should focus on spurring job creation (read: propping up automobile companies). Green types will demand that the fund invest in renewable energy. Health groups will fight against the purchase of cigarette company stocks, foreign policy types will push for divestment from the latest foreign enemy, populists will battle to exclude financial stocks from the fund, and so on.

Fund management should be set up like the Federal Reserve Board — appointed but independent. And its mission should be clearly stated: to maximize the pool of money available to our retirees, with few statutory restrictions on the options that it can pursue.

Done correctly, modernization of the Social Security Trust Fund will not only improve the solvency of Social Security, but it will remove one of the greatest forces that has propelled us toward big government. As deficit hawks, elected by a public eager for belt-tightening, Republicans have few areas better to advance their agenda than Social Security.