PERSPECTIVE ON SOCIAL SECURITY : Boomers' Burden on Generation X : Current payout levels can't be sustained; let the retirement savings system go private for all but the needy.

By JON COWAN

March 23, 1995 12 AM PT

<i> Jon Cowan, 29, is the co-founder of the youth advocacy group Lead . . . or Leave, based in Washington, and co-author of "Revolution X" (1994, Penguin). </i>

Suppose I knocked on your door offering the following retirement policy: Pay in 15% of your income for 40 years, and when you retire you’ll get what you put in, or less, and with no interest--if you’re lucky. Only a fool would go for this scam, but that’s exactly the deal Washington is offering younger Americans in Social Security, with one difference: Enrollment in the plan is mandatory.

According to estimates by the Social Security Administration, as well as the President’s Commission on Entitlement Reform, Social Security is expected to go belly-up in 2029, about five years before today’s 25-year-old would retire.

This estimate, bad as it is, is misleading and falsely optimistic. Starting in 2013, when the baby boomers begin retiring, Uncle Sam plans to pay a large part of their benefit from the money “saved” in the Social Security trust fund. Yet the fund will be empty, because Washington is spending it on general expenses, like planes, tanks, public housing and welfare checks.

Despite the truth about this imminent collapse of the system, Senate Democrats recently killed the balanced-budget amendment with claims that it left Social Security vulnerable to budget-balancing. And House Republicans swore in the 1994 elections that they’d never touch the program. Why this doublespeak from both parties? A simple political calculation: Older Americans vote, and Generation X doesn’t.

Unfortunately for America, this lie-to-get-elected approach is disastrous for our long-term fiscal outlook and will squander any hope of repairing the system before the crisis strikes early in the next millennium.

The time has come to reinvent Social Security based on a “cut and privatize” approach that will be fair to all age groups. This reinvention should be based on three principles:

* Start immediately to lower boomers’ expectations of the returns they will get and encourage them to increase private savings. My generation and my kids’ will have to pay upward of 30% of our income in payroll taxes to finance the boomers’ retirement at today’s benefit levels. That’s unreasonable and unworkable. Instead, we’ll have to dramatically slash benefits to stay solvent, and we should let folks know now what to expect when the ax falls.

* Separate out the welfare portion of Social Security and pay out poverty benefits to today’s--and tomorrow’s--needy seniors from general government revenues. In some cases, benefits will have to increase as we keep our commitment to protect America’s elderly from poverty; at the same time, benefits will have to be cut to seniors who are well-off. Yes, we’ll be breaking our commitment to folks who have paid in for decades, but that was not a contract my generation signed, and it’s not one that America can afford to fulfill.

* Lower the Social Security payroll tax to 10% and give workers the option of putting their money into private pension programs that offer far higher returns and sounder prospects than today’s Social Security system.

Young people aren’t fooled; we know that Washington is trying to dupe us into a false sense of security. In fact, one nonpartisan poll by Third Millennium, a Gen X group, found that almost twice as many 18-to-34-year-olds believe in UFOs as believe in the long-term existence of Social Security. Offering the option of private savings would not only give future generations a real chance to save for their retirement, but it would restore some of our trust in the political system.

Some will protest that these changes would radically alter one of America’s most successful social programs. They would be right: Social Security worked smoothly for decades, but major demographic changes and an irresponsible political system that handed out ever-expanding benefits mean that it’s failing us today. Only a comprehensive overhaul of the current system, with changes phased in over the next 15 years, will forestall fiscal catastrophe.

We have only a small window in which to act. Repairing the system will require tremendous upheaval if we wait until the baby boomers retire and are no longer paying taxes. It’s our political leaders’ obligation to tell the truth. We’re big enough to handle it.