Fix Social Security

With Bob Matsui's passing, the Democrats have lost their point person on Social Security. In identifying their new lead, they need someone who shared Matsui's practicality, and one who is willing to look at everything.

OrlandoSentinel.com: Opinion

Our position: The system is in trouble; even privatization deserves exploring.

January 9, 2005

The battle has begun over President George W. Bush's proposal to let workers set aside some of their Social Security payroll taxes in private-investment accounts.

Some opponents of Mr. Bush's proposal say its rationale -- a "crisis" in Social Security -- is bunk. Labels aside, they need to take another look at the deficits looming ahead for the government retirement program as retiring baby boomers swell its ranks.

Private accounts may or may not be a good idea for Social Security. They deserve careful study from Congress, along with other possible changes to the program.

But declaring Social Security sound, and doing nothing, would be fiscally foolish.

Those who dispute any notion of financial problems in Social Security have seized on the projection from the program's trustees that its trust fund won't be depleted until 2042. Unfortunately, the trust fund is a misleading indicator of Social Security's health.

The trust fund balance, currently about $1.5 trillion, represents cumulative annual surpluses from the payroll tax. But, by law, surpluses are invested in U.S. Treasury bonds. That means they are lent to the government for other spending. So the trust fund's "assets" are just IOUs; there's no pot of money to pay future benefits.

Congress will need to find a way to pay back those IOUs when they come due. That will begin happening as soon as 2018, according to another projection from the trustees. In that year, money from the payroll tax will begin to fall short of covering benefits.

If Congress has done nothing to change the program at that point, members will need to raise taxes, cut spending or increase borrowing -- or some combination of the three -- to come up with the money to close the gap. In the absence of any changes, the yearly shortfalls will add up to trillions of dollars in the decades following 2018.

The longer Congress waits, the more drastic the steps that will be needed. According to the Social Security trustees, delaying action even a few years would force deeper cuts in benefits or steeper increases in payroll taxes.

Supporters of Mr. Bush's proposal argue it would help head off Social Security's shortfall by reducing guaranteed benefits for workers who invest some of their payroll taxes in higher-yielding private accounts. But because Social Security is a pay-as-you-go system, where today's workers finance benefits for today's retirees, diverting some payroll taxes could force the government to borrow $2 trillion just over the next decade. Private accounts also would introduce an element of risk into the Social Security system.

Congress will need to weigh the economic and social impact of these changes against those of other steps to address Social Security's long-term funding gap.

But the time is ripe for action. Putting off changes will only let the problem get worse.