A 'cure' worse than the cold
Fire and freedom captured the headlines of the president's stirring inaugural address, but it was a handful of words toward the end of the speech that are likely to have the most profound impact on the daily lives of millions of Americans. After a nod to landmark legislation like the Homestead Act, the Social Security Act, and the GI Bill of Rights, the president said, "And now we will extend this vision by reforming great institutions to serve the needs of our time. . . . We will . . . build an ownership society."
It is clear that President Bush's first "ownership" priority is Social Security. Typically, this is presented as "reforming" Social Security or "saving" it from collapse. But what are the realities behind the easy rhetoric? Social Security is the most popular and universal of any of our government programs because it guarantees a pension to anyone who has contributed to the system throughout his working years. It's the cornerstone of life for nearly 48 million people--retirees, dependents, survivors of deceased workers, and the disabled--all of whom receive a check like clockwork every month. Millions more of today's workers will come to rely on those checks in the years ahead. Many don't think much about that fact, and few realize just how much of a nest egg they're going to need. An American reaching the retirement age of 65 today has an average life expectancy of 18 years, which means that roughly half of those who reach 65 can expect to live longer than 18 years. Four out of 10 have no non-work-related retirement savings. Six out of 10 haven't even tried to estimate what they'll need. They rely vaguely on Social Security, but how far will it carry them into their 70s and 80s? How serious is the "crisis" they hear about? What are the implications of "reform" ?
Hand-wringing. Social Security pensions were indexed to the rate of inflation in the 1960s and 1970s, transforming the lives of millions of Americans by dramatically diminishing poverty among the elderly. Now only 10 percent of those over 65 live in poverty--2 points lower than the national poverty rate. Roughly two thirds of people ages 65 and over depend on Social Security for at least half their income, and roughly 20 percent rely on it for their entire income. Currently, the payroll tax brings in more dollars than it pays out in benefits. The surplus, now roughly $180 billion a year, is invested in treasury securities and deposited into a trust fund, which now holds over $1.5 trillion of these notes. As the baby boomers begin to retire, the system will go into deficit around 2018, requiring drawing down on the fund. By that time the fund will exceed $3 trillion, so it will be in the black until around 2042, using the Social Security Administration's conservative economic and demographic assumptions, or 2052, using the assumptions of the nonpartisan Congressional Budget Office. Even if the system exhausts its reserves, payroll taxes will continue to roll in, enabling at least 73 percent of scheduled benefits to be paid out.
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