Social Security#039;s future: Brighter than you think

by Beacon Staff • October 14, 2007

The reasoning behind his snide dubbing is twofold: the high political mortality rate of those who suggest change to the program, and avoidance of the issue by even Washington's most forthcoming public officials.,The phrase has long since entered the political lexicon, but it was former House Speaker and Massachusetts Representative Tip O'Neill who first christened Social Security the "third rail of American politics."

The reasoning behind his snide dubbing is twofold: the high political mortality rate of those who suggest change to the program, and avoidance of the issue by even Washington's most forthcoming public officials.

During the Oct. 9 GOP debate, presidential candidate Fred Thompson threw conventional wisdom to the wind and grabbed the rail. Hard.

Thompson called Social Security's current trajectory "unsustainable" and proposed reducing the benefits of recipients to prevent the program from going bankrupt.

"For future retirees, instead of having nothing, which is what they're headed for under the current situation that's unsustainable, they would have protection," Thompson said in the debate.

It may sound technocratic, but Thompson is right. Given the imminent retirement of the Baby Boom generation, Social Security's current benefits structure-whether interim or indefinite-will have to be cut. Either that, taxes must be raised.

Social Security can be fixed by adjusting program benefits and tax rates to avoid a funding crisis while not comprimising the guarantee of payouts.

Thompson's plan would re-index benefits in reference to cost-of-living rather than wages, the standard by which payments are presently calculated. The cost-of-living index grows at a slower rate than wages, so this switch would result in diminished benefits and smaller governmental costs. So far, his plan is the most detailed and viable Social Security policy of all the presidential candidates.

Hopefully, Thompson's bravado will trigger similar responses from other candidates. But given the risk involved with discussing the issue, expedient adjustment of Social Security is still uncertain.

"Nobody's even talking about it, because there are no good options," Rep. Tom Davis (R-Virginia) said in October to The Baltimore Sun. "You are either cutting somebody's benefits or raising somebody's taxes."

BUSH'S PLAN: PRIVATIZE

After being reelected in 2005, President Bush did talk about it. Emboldened by the "political capital" he gained after his successful campaign, Bush presented a plan for reform which included the partial privatization of Social Security.

"We need to act now to fix Social Security permanently," Bush said.

Such a once-and-for-all solution to Social Security's problems is desirable but also unrealistic. Its budget is constantly in flux, ebbing and flowing with the ratio of the country's workers and retirees. The only permanent solution -save the draconian thought of its out-and-out abolition-would be regular adjustments to benefits and collected payroll taxes.

A major weakness of Bush's plan was that it did nothing to address funding solvency. Social Security would still have been fundamentally similar: the federal government would have paid for it.

The centerpiece of Bush's proposition was the establishment of personal retirement savings accounts into which taxpayers could divert Social Security benefits. These accounts could be used to assemble a portfolio of assets in the risk-laden financial markets.

The plan was a foolhardy attempt to merge gambling with a government program whose very purpose distribution of essential resources to retirees-always and without fail. The program would have become a crap shoot.

Franklin Delano Roosevelt, elected president barely three years after the 1929 stock market crash, signed the Social Security Act into law in 1935. FDR would have been aghast at the idea of funneling Social Security monies into the volatility of Wall Street.

Supporters of these private accounts saw the possibility of increased earnings, but a 2001 Congressional Budget Office report said otherwise.

"Corporate stocks deliver a higher expected return than government bonds because they carry higher risks," the study said.

Public response was cool, and both Democrats and generally Bush-loyal Republicans swiftly dismissed the plan.

LEARN FROM BRITISH

MISTAKES

The prospect of privatization still abounds, but failed models like Britain's pension reform should teach us to resist it.

In 1986, the country reformed its state retirement benefits program, giving citizens the option to divert money into private investment plans. The result has been "a bloody mess," to borrow the title of a piece by Norma Cohen in The American Prospect.

The British government's irrational, grass-is-greener privatization plan left few Britons satisfied. According to Cohen, "At the exact moment that America contemplates replicating this disaster, many in Britain-some conservatives included-are looking more and more kindly on American Social Security as a model for reform."

There is no justification for tampering with Social Security beyond its funding woes. Conservatives should recognize the risks and nightmarish problems privatization could bring.

BOOMERS ARE ALL GROWN UP

On Oct. 22, Kathy Casey-Kirschling of Maryland became the first baby boomer to start collecting Social Security. Over the next few decades, 80 million more boomers will claim their benefits.

The mass retirement should have been easily predictable, but politicians failed to adjust government policy accordingly. The program will begin consuming more money than it collects in less than a decade, according to the Congressional Budget Office, and it will go bankrupt in 2041.

Although the government has never faced a monumental budgetary problem like the one approaching, it should be cause for change, not motivate hysteria.

The ever-expanding American economy will help alleviate the problem-a raise in gross domestic product makes maintaining the program's solvency feasible.

The US gross domestic product-a good indicator of economic expansion-grew 3.9 percent from July to September.

The country's prospects for economic growth are encouraging, and if this significant growth continues, tax revenues will increase and the Social Security funding gap will shrink in relative size to the economy, making the gap easier to bridge with adjustments to benefits and collected revenue.

The Social Security predicament requires urgent and firm-handed action, but labeling it a crisis and panicking won't help. The widespread citizen satisfaction with Social Security in its present form should dissuade us from making any transformative changes to a long-standing program that merely needs to be fine-tuned.

FACING THE ISSUE

The third rail of American politics is still live, and a corollary can be added to O'Neill's exclamation.

Proposing change to Social Security is risky, but ambivalent silence is even more so. Inaction is the only thing that can bring about a major catastrophe. The Social Security "crisis" is a myth. Simple, regular adjustments to benefits and revenue streams will be enough.

Grab the rail, Washington. And for your sake and the program's, don't let go./p

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