Saving Social Security Requires Reform, not Accounting Tricks

In recent days, President Clinton has endorsed the House Republican leadership plan to repeal the unfair Social Security “earnings limit” that penalizes seniors who work. Under current law, seniors who earn more than $17,000 lose a big chunk of their Social Security benefits. But there remains a sharp disagreement between Congress and the president on the need to address Social Security’s long-term financial woes.

The demographic problems facing Social Security are hard, inexpungeable fact: Within 30 years, the number of Americans older than 65 will increase by 90%. Today’s unfunded future Social Security benefits are estimated by the Social Security trustees at $20 trillion.

This impending retirement of the Baby Boom generation requires fundamental reform, not accounting gimmicks. Yet through both Democratic and Republican Congresses, Clinton has done nothing to reform Social Security. Having failed to submit legislation for seven years, he finally has submitted to Congress a sham plan that leaves the pay-as-you-go Social Security system just as it is: completely unfunded.

The Clinton proposal (HR 3165), introduced by Minority Leader Richard Gephardt and the rest of the Democratic leadership of the House, expressly guarantees that for the next 15 years, not a penny from the Social Security surplus, or any other source, will be spent to bolster Social Security. Instead, the Clinton-Gephardt plan merely adds $7 trillion in IOUs to the existing mountain of debt in the Social Security trust fund--bookkeeping transactions that the president admits do nothing to bolster Social Security’s solvency.

As Clinton’s budget proposal this year stated: “[Trust fund] balances . . . do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.”

The only effect of these bookkeeping gimmicks would be to inflate the Social Security trust fund artificially. According to the U.S. General Accounting Office, the Clinton-Gephardt Social Security proposal would have “the same effect on the economy and the federal budget as a policy of no action.” It would, the GAO says, make “no change in Social Security.”

Under this “stand pat” plan, today’s workers and children would have to pay over $7 trillion in higher taxes, and take a similarly huge cut in benefits, or suffer the inflationary damage of massive increases in deficit spending, or some combination of all three--starting in just 14 years.

Without real reform, the Social Security system will begin running deficits in 2014, and by 2030 will run an annual cash-flow deficit of more than one-quarter trillion dollars. By 2070, under the Clinton-Gephardt “reform,” Social Security’s losses will total over one-half trillion dollars per year--the same staggering deficit that is currently projected with no reform at all.

For decades, Washington has spent Social Security taxes on other government programs rather than setting them aside for the future. The current fiscal year will be the first time this hasn’t happened since 1982. Now is our best--and perhaps our last--opportunity to use today’s short-run Social Security surpluses to give workers their own personal retirement accounts, in order to protect against the government’s projected future inability to pay Social Security benefits.

Sadly, however, both the president and the minority in Congress have signaled that during an election season, they are unwilling to join in crafting genuine reform that begins to put real economic assets behind the promises that Social Security has extended to every American worker. Indeed, the Clinton-Gephardt plan, by failing to reform Social Security fundamentally, guarantees that the Social Security program will go into the red in 2014, as projected currently.

But a policy of making our children pay the bills, and leaving their future unsecured, never can be the answer. Genuine reform of Social Security would increase the returns that workers earn on their payroll taxes, and at the same time ensure that a worker’s payroll tax will not be diverted into spending on other government programs. That is why--despite Clinton’s apparent abandonment of his 1999 State of the Union promise of personal retirement accounts--I remain committed to protecting the Social Security trust fund by crediting each worker’s Social Security taxes to his or her own account.

Through personal retirement accounts, dedication of today’s Social Security surpluses to real economic assets that back the system’s promises, and an end to phony bookkeeping and unfunded liabilities, we can save Social Security. But presidential leadership is an essential ingredient too--and for that, apparently, we will have to wait beyond November.