Maya MacGuineas
http://www.NewsAndOpinion.com -- THE debate about whether to included private investment accounts as a part of Social Security got ratcheted up another notch with the release of the Presidential Commission's report. Yet the hot-button issue of whether to invest part of Social Security's money in the stock market does not replace the basic question of how to balance the under funded program.
Creating personal accounts would change the timing and magnitude of the program's deficits -- currently projected to be $17 trillion over the next 75 years -- but would not, on its own, eliminate them. With or without personal accounts, the reform discussion will have to broach the topic of how to funnel more money into Social Security, or how to slow the growth of benefits.
Yet, politicians on both sides of the aisle prefer instead to concentrate on making promises about what they won't do, fueling the feeling that certain parts of the system should be treated as sacred cows rather than as potential pieces of the solution.
The two policy changes that have thus far achieved special exemption status are raising the retirement age and reducing the benefits for anyone in or near retirement. Though neither option is particularly appealing, such attempts to soften the blow of Social Security reform are based on short-term political calculations rather than an effort to create an equitable long-term solution, and will greatly increase the costs in the future.
In the last Social Security commission's report, issued just four years ago, two of the three plans recommended increasing the retirement age, which in concert with other changes, would have helped to bring the program back into balance. But since, we had a rather testy Presidential campaign where accusations that candidates were willing to consider raising the retirement age were flung with such venom that now few politicians will even utter the proposition other than to swear it would be enacted over their dead body. Asking people to keep working to 68, or even 70? Why it would be unconscionable.
Except that the demographics tell a different story. When Social Security was created, workers were permitted to retire at age 65. The average life expectancy was 63. Today, there is early retirement at 62, normal retirement at 65 and two months, and life expectancy has risen to 77 - and it is heading upwards fast. Speeding up the increase in the retirement age, which is currently slated to reach 67 in 2027, and increasing it to 68 or 70 thereafter would reduce the existing shortfall facing the system by as much as one-quarter to one-third. As for the bricklayers and waitresses who politicians tend to evoke as the reason why no one should be asked to work longer? The simple solution is to maintain the disability component of Social Security so that anyone who couldn't work until they were eligible to receive benefits, wouldn't have to.
Arguing that current retirees should be part of the solution is perhaps on the surface more difficult. There is a viscerally negative response to the suggestion that anyone should receive less next month than they did last and no politician wants to be portrayed as stealing grandmother's checks. It is certainly true that any changes to the benefits of the one-third of retirees who rely on Social Security as their primary source of income could cause undue hardship.
But leaving all benefits untouched for even another decade will significantly increase the level of benefit reductions down the road. It would take benefit cuts of Suggesting that well-off retiree should be exempt from reforms while today's low-income workers should make up part of the difference hardly helps the system meet the objective of ensuring that all retirees are well cared for. Instead, means testing, or, alternatively, taxing a greater share of benefits of high-income retirees, could reduce the Social Security deficits anywhere from twenty-five to seventy-five percent.
Both raising the retirement age and scaling back benefits for those who can afford it would help speared the costs of reforms between generations more fairly. Lumping the bulk of reforms on future generations would clearly be unfair, particularly given that they will be relatively worse off than previous generations even before any changes are made.
While today's retiree are receiving substantial windfalls from the system, oftentimes equal to $100,000 or more, today's workers on average will receive virtually no windfalls. Furthermore, since the payroll tax has been increased so many times since the system began, current workers are already paying up to twice as much of their income to support Social Security as today's retirees did.
Neither of these suggestions will be greeted warmly. But no matter how Social Security is reformed - by creating private investment accounts, investing part of the trust funds, or dusting off the now defunct lock box - the tough issues of how to get more revenues into the system or how to reduce benefits will still have to be grappled with. Promises to postpone the tough choices will not get the job done.
They may however skew the debate to the point where no politician has the courage to stand up for unpopular but fair-minded reforms, in which case, future generations will pay a hefty price
. Instead, it's time to put all of the
options back on the table so that a meaningful discussion can
JWR contributor Maya MacGuineas is a Fellow at the New America Foundation. Comment by clicking here.
12/11/01 The Demise of the Social Security "Lockbox"