Neither Bush Nor Gore Solves Real Social Security Problem

Vice President Al Gore is devoting the last days of the presidential campaign to his promise to protect Americans’ Social Security benefits. Texas Gov. George W. Bush is claiming that he can provide new retirement wealth by letting people invest some of their Social Security taxes in stocks.

But a close look at the candidates’ Social Security proposals shows that neither will do much protecting or providing. And for good reason: Neither plan includes any of the substantial costs that the nation will have to bear to fix the huge retirement system.

Gore would attack what everyone agrees is Social Security’s big problem--the prospect that benefits for the gigantic baby boom generation eventually will outstrip the taxes intended to pay for them--by pumping trillions of extra dollars into the system from the nation’s budget surplus. What he fails to mention is that all that extra money still would not plug the hole that the boomers are expected to tear in the program.

Bush would let workers invest their way out of trouble by earning “a better rate of return” on part of their Social Security taxes than the government now gets. What he fails to mention is that boomers, no matter how shrewdly they invest, would collect retirement benefits almost certainly no greater than they are now promised--and possibly even less.

Numbers Don’t Add Up on Either Side

Either way, the solutions do not match the dimensions of the problem. “The candidates’ proposals only tinker at the edges,” said C. Eugene Steuerle, a former Reagan administration Treasury official now with the nonpartisan Urban Institute.

Some big guns have been wheeled into the fight. In recent days, both President Clinton and Treasury Secretary Lawrence Summers have charged that Bush’s numbers don’t add up. The GOP candidate, relying on normally nonpartisan congressional committee staffs, has countered with essentially the same charge against Gore.

The strain is showing not just between the two political camps but between each camp and some of its most durable allies.

A recent Gore television ad accused Bush of promising to fund personal accounts with Social Security tax revenue “needed to pay current benefits.”

“That’s not correct,” said Robert D. Reischauer, president of the Urban Institute and usually a supporter of Gore’s Social Security proposals. The worst accusation that can be made, Reischauer said, is that Bush is proposing to use funds needed to pay future benefits.

Likewise, the Bush campaign cited a recent Congressional Budget Office report to support its charge that Gore’s Social Security plan would boost the national debt by $40 trillion.

“We did not analyze or calculate anything having to do with the vice president’s proposal,” CBO Director Dan L. Crippen said.

The hole in Social Security is hardly apparent today. Current workers are pumping so much into the system that they are covering the benefit costs of 44 million retirees and disabled people and producing a $155-billion annual surplus.

The problem will come when the baby boom generation--the 76 million Americans born from 1946 to 1964--retires and has to rely for support on the smaller generation that follows. Experts foresee 2037 as the year when payroll tax revenue, coupled with the Social Security system’s currently building surpluses, will no longer cover the costs of promised benefits.

Most experts say the hole cannot be plugged without raising taxes, cutting benefits or both.

The two candidates carefully have avoided mentioning this unpalatable prediction. Both have suggested that their alternatives would let the nation avoid ever having to make such choices.

Gore’s solution is to promise a giant chunk of future income-tax revenue to keep the Social Security system afloat through 2054.

He would generate the money by using annual surpluses to pay off the national debt within 12 years. Interest on the debt now costs the government about $250 billion. Gore would reserve those savings for Social Security benefits.

Breaking a Promise Not to Politicize

Critics say that Gore would simply give the Social Security system a giant IOU to be made good by future taxpayers. If he failed to eliminate the national debt, he would have to make good on the IOU by raising taxes, cutting other government programs or borrowing more money from the public--and driving interest payments back up.

“Essentially, he has no Social Security proposals,” said Michael Tanner, director of the Social Security private investment project at the Cato Institute, a conservative think tank.

“He has a plan to pay down the national debt, which may or may not be a good thing,” Tanner said.

Even worse, say the critics, Gore would break the pledge by President Franklin D. Roosevelt that Social Security would finance itself through the payroll tax. Roosevelt’s goal was to avoid annual battles in Congress over providing funds to keep the system operating.

“Some people are concerned that you lose your discipline” by diverting income tax revenues to Social Security, said Ron Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries. “If general revenue are used, the Congress will argue how much to give Social Security each year and the program becomes politicized.”

Bush would plug Social Security’s financial hole by reducing the payroll tax and letting workers invest the difference in the stock and bond markets. “The single most important way you can save Social Security is to get a higher rate of return by letting people invest some of their money,” Bush spokesman Ari Fleischer said Wednesday.

The GOP candidate has said that he would use $1 trillion, or about half of the surplus that the program is expected to amass over the next decade, to fund individual investment accounts for those who choose them. Otherwise, he has left the details to a commission he would appoint.

His aides have cited a half-dozen private investment plans in Congress from which the final plan would be drawn.

But the candidate and his aides have not pointed out an unwelcome conclusion of Social Security analysts: that even with higher stock market returns, none of the congressional proposals could fill the program’s financial hole. Substantial benefit cuts or massive transfers in tax revenues would be needed.

If the investments went sour, the investors (or the government) would be so much the worse off. And even if they earned healthy returns, several of the congressional proposals would give most of the income from stock market investments not to investors but to the government.

For example, a plan by House Ways and Means Committee Chairman Bill Archer (R-Texas) would funnel all of the funds in a person’s account back into the Social Security system upon retirement.

Bush advisors refuse to say whether they think such painful conditions would be necessary to make personal accounts work.