Social Security has been the focus of heated exchanges between Rick Perry and Mitt Romney. Perry has referred to the program as a “Ponzi Scheme,” and a “monstrous lie.” He has backed off some of his most radical positions—that Social Security is unconstitutional and should be delegated to the states—but still clearly favors drastic changes to the system. Romney has attacked Perry vigorously for these statements; Romney instead advocates more moderate reforms to restore solvency of Social Security.

With all of this rhetoric, it is hard to cut to the meat of the matter. How big of a problem is Social Security? How should it be fixed?

The present value of the shortfall over the next 75 years is around $5.4 trillion, or 0.7% of GDP. That sounds like a lot, but relative to today’s GDP, the shortfall is only around $100 billion per year. This is a serious but fixable problem.

How do we fix Social Security? You can either put more money in or take less money out. To put more money in, you could raise the payroll tax rates, or increase the cap on income above which the payroll tax does not apply. But increasing the cap should not be done lightly; a 12.4 percentage point tax increase would be a mighty wallop for those to whom it would apply. An alternative approach would be to impose a surcharge of, say, two percent on all income.

To take less money out, we can either raise the retirement age or, reduce the projected schedule of benefits; both of these options are likely to be considered. Even the AARP understands that reductions in benefits are inevitable.

There are many ways to reduce benefits, some better than others. Cutting benefits across the board seems implausible. Another way—which was proposed by Obama but has now been abandoned—is to change the measure of price inflation to one that reports lower inflation. This would mean smaller cost-of-living adjustments, and thus smaller benefits. But this would harm the oldest (and thus poorest) recipients the most.

A better way, as I proposed in 2005, is to slow the growth of benefits progressively. Currently, benefits are calculated based on the wages you earned throughout your life. These wages are adjusted for wage-inflation, reflecting the general increase in standard-of-living. My proposal is to index these wages by price-inflation for high-wage individuals, while leaving it unchanged for low-wage individuals. Those in the middle would have their wages indexed by a blend of both measures (see graph, below). This proposal would reduce the shortfall by about 2/3 because price-inflation is generally lower than wage-inflation. Furthermore, it would be progressive.

Relative to today’s prices, no one’s benefits would be cut; they would just grow more slowly. Nevertheless, any adjustment to Social Security will be difficult politically. In order to get political support for such changes, we need to help middle-class Americans replace those lost benefits with private savings. A generous savings credit (matching at 50% the first $500 of savings every year) combined with increased access to tax-deferred retirement accounts through an Automatic IRA would be a good start. These would require taxpayer support, but the cost of these programs would pale in comparison to the savings from Social Security.

Put simply, Social Security is a problem, but we know how to fix it. In an environment where fiscal balance is a key priority, now is the time to take the plunge and restore Social Security to solvency.