Chicken Little Lamm

July 19, 1996|By John Judis

REFORM PARTY candidate Richard Lamm has won high marks from editorialists for going after ''sacred cows.'' But candor and boldness are not always useful attributes in a politician. It depends on what the issue is, and whether the politician is right or wrong. Winston Churchill on the Nazi peril was one thing. Richard Lamm on Social Security is quite another.

For the last decade, Mr. Lamm has warned that Social Security is ''heading for bankruptcy.'' ''Social Security will create insecurity for America's children,'' he declared July 9 when he announced his candidacy. Social Security ''will be broke when my children retire,'' he intoned in June.

He also frames the issue as one of ''intergenerational equity.'' ''Public policy,'' he maintains, ''should not blindly transfer money from the young to the old.''

Mr. Lamm says he is offering a ''no B.S. agenda,'' but his pronouncements on Social Security -- like those of other doom sayers -- are almost entirely B.S.

Is Social Security going bankrupt? According to the Social Security Administration, the program will run a surplus for the next two decades, which will reach $3.1 trillion in 2015. The baby-boom retirement will then force it to begin drawing on that surplus to meet annual expenses.

If nothing is done to raise revenue or reduce benefits, the program will first incur a deficit in 2030 -- 34 years from now. And if we sit on our hands for 74 years, it will have incurred a deficit of 2.2 percent of payroll per year. Sure, that's a problem. But compared to, say, the solvency of the Medicare fund, it's a manageable one.

The eventual deficit could be met, as former Social Security Commissioner Robert Ball has proposed, by increasing the Social Security tax 2 percent (1 percent each on employees and employers) in the year 2050 and by allocating 40 percent of the trust fund to equity purchases rather than to lower-interest Treasury bills. Or it could be met now by raising the payroll tax on employees and employers 1.1 percent each. If all our problems were this dire, Congress would only have to meet several months a year.

From young to old

Is Mr. Lamm right that Social Security unfairly transfers wealth from young to old? That an unconscionable act of intergenerational inequity is taking place?

Look at its origins. In the 19th century, most Americans lived on or near farms in large, extended families where costs were shared among generations. As they got older, they worked less rather than retired. By the 1930s, Americans were living longer, in smaller families in cities and working in other people's factories and offices until, if they survived past 65, they were forced to retire. Unable to count on their extended families, they sometimes became victims of poverty and of the powerlessness borne out of physical and mental deterioration.

The adoption of the Social Security Act in 1935, and its subsequent amendment, didn't just dramatically improve the lot older Americans. It also improved the lives of their children by freeing them from the financial and emotional responsibility for taking care of their parents when they became unable to work.

If anything, Social Security places undue burden not on the younger generation, but on their parents, who become responsible not only for bringing up the children (an unfunded liability!), but also for funding their retirements through Social Security taxes.

Mr. Lamm argues that Social Security recipients are making out like bandits. ''The rate of return earned by today's retirees would make a loanshark blush,'' he wrote in 1987. ''The average retiree gets back his or her payroll taxes, plus tax-free interest, four times over from Social Security, and 10 times over from Medicare.''

That's nonsense. The first generations of Social Security recipients naturally received more in benefits than they put in, but subsequent generations have increasingly put in about what they have drawn out.

Mr. Lamm and other critics of Social Security cook the figures by leaving out employer contributions and not counting what retirees would have received if they had kept their money in interest-bearing accounts. Assuming a 3 percent annual rate of return, Dean Baker of the Economic Policy Institute calculated that when a person who worked for 45 years at average wage retired in 1994, he and his employer would contribute 16 years to his income under Social Security. That's about how long he is expected to live.

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