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
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.