Time to touch the third rail
Federal reserve chairman Alan Greenspan has chosen to up the already considerable stakes in the 2004 presidential election. Greenspan's warning of Social Security's impending fiscal disaster has struck fear among a large number of baby boomer Americans on the verge of retirement.
Greenspan said that "we owe it to our retirees to promise only the benefits that can be delivered" and that any delay in recalibrating our public programs could lead to "abrupt and painful" adjustments for retirees. As of the end of 2003, nearly 40 million people were receiving Social Security benefits, with an additional 7.6 million receiving disability benefits. But with 77 million baby boomers set to retire over the next 30 years, the U.S. population over the age of 65 will double by 2035. You don't need to be a mathematician to see the trouble ahead.
No federal government program is more important to the quality of life of our nation's seniors. Without Social Security, half of all seniors would live in poverty. The actual poverty rate for seniors in this country, though, stands at 10.2 percent. And not only the health of our seniors but that of our economy and society depends on successfully resolving the Social Security issue. The 2004 annual report on Social Security projected that the program's income will begin to fall short of its outlays in 2018. The trust fund will still be able to pay out about three quarters of its scheduled benefits until 2042, at which point the fund is expected to be insolvent. Obviously, we'll need to make those adjustments before we reach insolvency because retirees are counting on that income to merely stay above the poverty line.
The report contained some good news, though. The fund's trustees say Social Security can be saved through an immediate increase in payroll taxes of 15 percent or a reduction of benefits of 13 percent, or a combination of the two. So while it's clear what must be done, it's far less certain whether either President Bush and the Republicans or Sen. John Kerry and the Democrats have the political courage and confidence to act.
The height of a presidential campaign is hardly the most opportune time for either candidate to take on the critical question of Social Security. I don't know if Bush and Kerry are ducking the third-rail political issue altogether, but I've yet to see a specific and viable plan from either candidate. For that matter, I've yet to see a plan from either political party that would solve the looming Social Security crisis.
False promises. "Anyone who pretends that this problem can be solved without tax increases and benefit cuts is either ignorant or lying," says Peter A. Diamond, institute professor at Massachusetts Institute of Technology and coauthor of Saving Social Security: A Balanced Approach . "That is something that the politicians, for understandable reasons, are all ducking, because the issue is how do you address voters who aren't paying that much attention."
Bush has suggested privatizing Social Security, a major part of his vision for an "ownership society," where more Americans own their homes and healthcare, and especially their retirement. But most economists are curious as to where the government would raise the estimated $1 trillion in transition costs necessary to complete the switch. The likely result would still be either a tax hike or benefit reduction, Diamond says. "Individual accounts are put forth as a third option . . . you can have tax increases or benefit cuts or individual accounts--that's a falsehood," he says. "Every plan that's had individual accounts has to increase taxes and cut benefits also."
Kerry, on the other hand, has repeatedly told Americans what he would not change about Social Security, but he has yet to announce what he would do to save it. According to his campaign website, Kerry says he will not raise taxes or raise the retirement age or cut benefits for those who rely on Social Security, or privatize the program. I really don't know what else Kerry plans to look at, but he's probably not going to find a solution by ruling out all of those options.
The Social Security compromise will have great implications for the well-being of our nation's seniors, our workforce, and society. And therefore, any solution must avoid borrowing more money or transferring general revenue funds to cover the program's costs. We must allow our retiring seniors to receive what their years of hard work and back payments have entitled them to. Social Security is a political promise that Democrats and Republicans can't afford to break.
This story appears in the September 13, 2004 print edition of U.S. News & World Report.