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Social Security

The Social Security Report

Thursday, January 9, 1997; Page A20

The government's most basic benefit program, Social Security, will face a serious financial problem beginning fairly early in the next century, when the baby boomers begin to retire. An official advisory council, whose appointment was required by law, has just reported back with some possible solutions. The response of the politicians, including the president, to whom the report was addressed was to gulp, say thanks a lot – and flee. Thus do major problems get solved in contemporary America.

The Social Security problem is both familiar and simple. The money is not in sight to support the current benefit structure when the boomers leave the work force, stop paying the tax and instead become beneficiaries. The normal devic\es for solving such a problem are to raise taxes, cut benefits or both. But the tax is already high, as well as regressive, and many people seem to question whether even the current benefit structure represents a good deal. They think, or have been led by critics of the program to believe, that they could do better saving and investing for their retirement on their own. A benefit cut of the magnitude required could further weaken the political support on which the program depends. How to navigate among such contradictions?

Some members of the advisory council say the way out of the dilemma is essentially to dismantle or "privatize" Social Security. For all but people either already on the rolls or relatively close to retirement, they would cut the basic benefit level way back and begin diverting close to half the proceeds of the tax to individual savings accounts. Each worker would be required to have one, but could manage it on his own. The assumption is that most of the money would be invested in the stock market and that for most workers the return on investment when added to the basic benefit would be greater than under current law. The financial problem the government faces would be made to disappear by the simple device of cutting more or less in half the government's responsibility for supporting retirees.

But that sharp a reduction is a terrible idea. The price would be to lower the income floor under the elderly, thereby abandoning one of the major social accomplishments of the past 30 years, put elderly people (and their children who would otherwise have to support them) at risk if the stock market fell, and reduce the ability of the government to come to the rescue of have-nots, which in various ways it does through the current benefit structure.

A second group on the council adopted what you might call the opposite position, equally wrongheaded in our view, that the current benefit structure can largely be maintained. It basically made a lot of revenue-raising proposals, one of which would also involve the investment of Social Security funds in the stock market. But in this case the government would do the investing, collect the proceeds and continue to be the disburser of benefits, as before. The stock market would just be used as a revenue booster.

A third group, the council chairman and one other member, proposed a fairly conventional combination of revenue-raising steps and benefit cuts to make future costs and revenue come out even. The benefit cuts included a kind of means-testing and an increase in the normal retirement age. Atop this, they too involved the stock market by proposing an additional payroll tax to fund compulsory individual savings accounts.

That's the menu of possibilities from which the politicians scurried. Our view is that it's wrong to respond to the financial problem Social Security faces by recommending, in effect, a dismantling of the program – and equally wrong to pretend that the program and the benefits it now offers can be preserved unchanged. The third of these alternatives has always seemed to us a promising blend. It, at least, is in the zone in which the debate should occur.

© Copyright 1997 The Washington Post Company

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