Social Security is Being Discussed But Dirty Secrets Remain

By Maya MacGuineas
Director, Fiscal Policy Program, New America Foundation

The San Diego Union Tribune
November 1, 2000

Social Security reform has long been considered an issue so dangerously charged it has been heralded as the third rail of politics -- touch it and you die.

Politicians have tended to play it safe, restricting their comments on the topic to singing Social Security's praises, despite the severe budgetary problems facing the retirement system, which have been known for years. But now with both Texas Gov. George Bush and Vice President Al Gore putting forth plans to reform the program -- and surviving to tell about it -- it appears that the issue has in part been neutralized.

Nonetheless, the painless options the candidates are advocating (adding credits to the trust funds in Gore's case and increasing investment returns in Bush's) and the unrealistic promises that go hand in hand with their respective plans, are evidence that a new third rail issue that politicians are loath to discuss has emerged -- cutting Social Security benefits.

To the detriment of open and honest dialogue, the candidates have chosen to appease a public that craves pain-free reform by making promises that are both unwise and unrealistic. The presidential candidates are nearly tripping over each other to reassure voters that under their plans, benefits for retirees and near retirees (everyone older than 13 in the case of Gore) would remain unchanged.

Truth be told, protecting all benefits is next to impossible, and attempts to do so stand in the way of keeping Social Security affordable. Revenues and expenditure face wildly different paths, leaving a staggering $17 trillion funding gap over the next 75 years.

Without a reigning in of benefits, the program will increase as a portion of GDP by almost 50 percent over the next 30 years. The options to keep Social Security's income and expenditures aligned are broadly limited to two: (1) increasing the money that flows into the system, either from taxes, revenues from other areas of the budget, higher returns or borrowing; or (2) decreasing the funds that flow out of it. With the gap so large, almost certainly, both will have to be employed and the sooner any changes are made, the less drastic they will have to be.

The presidential candidates have thus far successfully skated along with half-truths because neither plan tells the whole story. Under both Gore's plans to divert trillions of general revenue dollars into Social Security and Bush's to divert trillion of dollars out of it into investment accounts, large funding gaps remain. While thus far the candidates have offered the more appealing part of their respective plans, more difficult choices will follow.

Certainly, there is an argument for deferring inevitable Social Security cuts, giving future retirees time to prepare for the reductions they will face. But time is not the only factor in saving for retirement. Many lower-and middle-class workers simply do not have the additional funds to save an extra 5 percent or 10 percent of their salary. And it is they who will be most jeopardized if, in lieu of smaller benefit cuts now, we enact large ones later.

There will be those who try to pull on the nation's heartstrings, painting pictures of hapless grandmothers losing their benefits. But there are numerous ways to adjust the current benefits structure without touching payments to retirees who depend on the system. Various forms of means-testing benefits, or adjusting payments for the highest income beneficiaries can easily be devised so that no retiree who gets the bulk of his or her income from Social Security would be affected.

Issues of generational equity also call into question the exempting of all current retirees from reforms. Today's workers are already expected to fare far worse under Social Security than did earlier generations. While the earliest generations of workers received returns in the double digits, current workers are expected to receive returns of 1 percent to 2 percent.

Moreover, due to an ever-increasing payroll tax, current retirees paid only one-half to two-thirds as much of their income to support Social Security as do today's workers. Burdening younger generations with the entire responsibility of paying for reforms will decrease their returns further and continue the unraveling of support for the system already seen in young workers.

By exempting all retirees and near retirees from reductions in benefits, we are effectively pushing the entire cost of necessary changes onto future generations. Clearly, it would be fairer to spread the costs of keeping Social Security operating among those who can afford it rather than dumping them onto those who were unlucky enough to be born too late to reap the windfalls bestowed on earlier generations.

Fairness dictates that no reform should be taken off the table and formal plans should be evaluated on their ability to protect the vulnerable while making the system more efficient. But now that the candidates have grabbed the once-feared third rail of Social Security reform, they will have to hold on long enough to tell the full truth about what it really entails.

Copyright: 2000 The San Diego Union Tribune

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