Newspaper article The Christian Science Monitor

Social Security Needs Long-Term Overhaul, Not Campaign Slogans

Newspaper article The Christian Science Monitor

Social Security Needs Long-Term Overhaul, Not Campaign Slogans

Article excerpt

Federal Reserve Chairman Alan Greenspan is no politician. He proved that in his recent testimony before Congress, speaking the unspeakable truth that the future costs of the Social Security program are unsustainable and (gasp) cuts will be needed. As a result, for the first time since its inception, Social Security could become a major campaign issue in this fall's election.

The value of Mr. Greenspan's testimony is that it highlights the undeniable need for Social Security reform. The fiscal facts are frightening - and are corroborated by other respected and nonpartisan voices, including the General Accounting Office (GAO) and the Congressional Budget Office (CBO). The financial crisis facing the Social Security system is driven largely by the impending retirement of the baby-boom generation. Eligible for retirement beginning in 2008, these 78 million Americans will quickly overwhelm the ability of the system to pay promised benefits.

For nearly 70 years, the "pay as you go" nature of the Social Security system has worked reasonably well. Still, on numerous occasions, the payroll tax has been increased to ensure enough annual revenue to pay promised benefits. When first enacted, the Social Security payroll tax of 2 percent applied to the first $3,000 of a worker's income. Today the tax is 12.4 percent on the first $87,900 of income.

But the baby-boom generation is twice as large as the current crop of retirees - and soon there will not be enough paying workers to finance the program.

The numbers are relentless. The most recent Social Security trustees' report calculates that by 2018, payroll taxes will be insufficient to cover annual Social Security benefits.

At present, there are approximately 3-1/2 workers for every retiree. But by 2030, when baby boomers are fully retired, there will be only two workers per retiree. Clearly, something has to give - and Greenspan's testimony alerts us to the fact that doing nothing is not an option.

In response to Greenspan's alarm bell, many politicians will insist that the Social Security trust fund will buy us some time. But, in reality, the trust fund is not a government asset, it's a liability. Why? Because the payroll-tax surplus has been used routinely to mask overspending in the rest of the federal budget. Special Treasury bills have been issued to the trust fund. However, they amount to no more than an IOU. The only way to honor these trust-fund obligations is to raise taxes, cut other government programs, or borrow money. Obviously, none of these is a particularly attractive option.

For his part, in his State of the Union message, President Bush proposed using a portion of payroll taxes to create personal- investment accounts for American workers. I was a member of the president's bipartisan Commission to Strengthen Social Security, and I agree that personal accounts should be part of the system in the future. …

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