Social Security: Get Tough
President Bush’s handpicked commission on Social Security reform is charged with finding ways to keep the system solvent as a rising number of retirees line up for their promised benefits. But based on the panel’s first meeting this week, it seems unlikely that Bush will rush to embrace its recommendations.
The 16-member commission’s co-chairmen, Richard D. Parsons, a Republican businessman, and former Sen. Daniel Patrick Moynihan, a Democrat, looked reality in the eye and spoke some unpalatable if familiar truths. To meet the system’s future obligations the retirement age might have to be raised and annual cost-of-living adjustments might have to be reduced. Another possibility is that payroll taxes--currently 12.4%, split evenly between workers and employers--might have to be increased. Politicians tend to swoon at even the thought of such unpopular remedies. That’s one reason why Bush put no sitting elected official on his commission.
Social Security is a pay-as-you-go program: Today’s payroll taxes fund benefits for today’s retirees. Right now there’s a comfortable surplus, invested in Treasury bonds. But by 2016 payroll tax income is expected to fall short of what is paid out. And by 2038 the surplus is expected to be gone. At that point, analysts project, Social Security will be able to meet only about 72% of its obligations.
Bush and the commission are in general agreement on one matter--every member supports some form of private accounts. Bush wants to let younger workers put part of their payroll taxes into private retirement accounts, arguing they could earn higher returns from the stock and bond markets and boost their retirement income. But Bush has never said how he would make up for the diverted money, by some estimates as much as $1 trillion. That transfer would simply hasten the day when Social Security couldn’t meet its promised payouts. Commission members have yet to reveal how they would fund the transition costs.
There’s nothing wrong with the government’s encouraging private investment accounts; IRAs are a familiar and successful example. But even if such accounts could be set up without affecting the system’s solvency, they are not the answer to the problem. Social Security is in trouble because Americans are living longer and because the shrinking ratio of workers to retirees will soon squeeze more money out of the system than comes in. All this has been known for a long time. And for just as long, Washington has fled from doing the hard things that have to be done to set matters right.
