Investing Social Security Surplus Law Says Funds Must Be Placed in US Securities; but New Proposals Would Use It Elsewhere. TO USE OR NOT TO USE

Article excerpt

LIKE painted horses on a carousel, questions about America's Social Security system have come around once again.

A decade ago the questions were fundamental: Would the whole system soon run out of money to pay American retirees? In 1983 the federal government solved that problem for half a century by getting Americans to pay higher Social Security taxes, enough to build a surplus.

"The issue now is a much narrower one," says economist Barry Bosworth of the Brookings Institution. What do we do with the mounting surplus, expected to reach $225 billion by the end of this year?

This question, and proposed answers, now confront Washington and the nation. So does another query: Is today's surplus real or a sham?

Major disagreement exists on each of these questions. But experts stress that the Social Security payments to retirees, widows, and the disabled are not in any danger for decades.

The surplus in the Social Security Trust Fund is building in order to finance the retirement, beginning about the year 2025, of America's baby boomers. The surplus is to peak in 2025 at a projected $9.23 trillion, then rapidly dwindle until it is exhausted around 2043.

By current law this surplus can be invested only in US government securities, which is cause for concern. The surplus is being used to camouflage the true size of the budget deficit, already approaching $200 billion this year even after it consumes the Social Security surplus.

That's why some economists say there actually isn't any surplus: "We're already spending it," says Dan Mitchell of the Heritage Foundation.

Nevertheless, many economists say they believe the surplus should continue to be invested in government securities, on grounds the government is its most dependable source of income. "Henry Aaron of the Brookings Institution. "It must come in reliably," he adds, as it is the financial underpinning of millions of current and future retirees.

Barry Bluestone, an economics professor at the University of Massachusetts, argues in effect that it is vital to America's future - and to the future level of Social Security payroll payments - to have a better-educated, better-trained work force. …