Unnecessary and unwise

February 07, 2005|By Kenneth S. Apfel

THE OPENING salvos are being fired by the White House in its efforts to radically restructure Social Security. Is there really a crisis in Social Security? Does "privatization" help to solve the crisis? Are privatization schemes that drastically alter the Social Security benefit structure in the best interests of the young or the old? The answer: No.

First, is there a financing crisis in Social Security? No. The Social Security financing shortfall is relatively modest and certainly manageable without drastic changes.

Social Security does face a long-term deficit. According to recent projections, the Social Security trust fund will be exhausted in about 40 to 50 years. But contrary to Bush administration rhetoric, the system will not be "bankrupt" at that time. Social Security revenues will still be sufficient to pay 70 percent to 80 percent of today's benefit commitments. Simply repealing the Bush tax cuts for the richest 1 percent of Americans would resolve a large part of the Social Security shortfall. That's not a crisis by any standards.

Would the privatization of Social Security solve the long-term Social Security shortfall? Absolutely not. Taking payroll tax revenues out of Social Security to create individual savings accounts makes the long-term financing problem bigger, not smaller. Unless benefits are drastically curtailed or other revenues raised, privatization alone makes the Social Security financing problem much worse, not better.

Lastly, are drastic alterations in Social Security benefits in the best interests of current retirees or young people? No.

The White House argues that current retirees would be unaffected by privatization proposals. I don't question its sincerity on this matter, but the reality is that redirecting current payroll tax revenues erodes financing for Social Security. These changes destabilize Social Security's financing. Privatization calls into question whether and how benefit commitments made to current retirees will be made in the years ahead. Privatization is simply not in the best interest of current retirees.

What about future retirees? Would privatization, coupled with major alterations in the benefit structure, be in their best interest? Again, no.

With privatization, a growing share of retirement income would be based on the returns of the stock market. That could be a real winning proposition for some, but trying to retire in a time of down market conditions is a very risky proposition.

An example: For years, supporters of privatizing Social Security extolled the virtues of the Chilean privatized system. But during a major downturn in Chile's stock market, the head of Chile's system was publicly urging older people to keep working until the stock market came back to avoid big cuts in future retirement benefits.

If we privatize a part of our Social Security system, we could find ourselves in the same situation as Chile. Frankly, I would hate to see a future Social Security commissioner urging America's older workers to "just keep working till the markets come back." We really don't know how long that wait might be. Social Security ought to represent a foundation of support that can be counted on in retirement, no matter what happens to the market.

The president's Social Security Commission suggested that changing to a system of "price indexing" - linking benefit increases to prices instead of wages, for example - could resolve the financing problem. This idea of simply using price indexing to calculate future benefit payments sounds harmless enough.

How much longer would a young person have to work to make up for these Social Security cuts? Price indexing is comparable to an invisible increase in the Social Security retirement age - equivalent to raising the retirement age for full Social Security benefits to age 71 for today's 35-year-olds and to 75 for children now in preschool.

Changes of this magnitude are reckless, unnecessary and dangerous to the economic security of future generations.

Let's come together and solve a manageable problem, and not create a much bigger one by privatizing Social Security. And in the process, let's cool down the crisis rhetoric and keep the word "secure" in Social Security.

Kenneth S. Apfel holds the Sid Richardson chair at the University of Texas, Austin's LBJ School of Public Affairs. He was commissioner of Social Security from 1997 to 2001.

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