Two-sided challenge

February 09, 2005|By Steve Chapman

CHICAGO - Listening to liberals and conservatives bicker about Social Security is like hearing someone talk about Dr. Jekyll and Mr. Hyde. Their perceptions are so different that it's hard to remember they are both talking about the same thing.

Liberals see it as a sacred social welfare program that shields the elderly and therefore must be protected at all costs. Conservatives see it as a grossly overstretched entitlement that punishes the young and thus needs to be fundamentally reshaped. Liberals say the system can be preserved with modest changes. Conservatives think only drastic reform can avert calamity.

The problem is that they really aren't talking about the same program.

The first component of Social Security is a pension. Everyone makes regular payroll contributions to secure a reliable source of income in retirement. The other is a form of welfare. The benefit checks are supposed to protect the elderly against destitution, with a benefits formula tilted in favor of low-income workers.

The current debate over Social Security stems from its long-run financing gap, which exists because retirees are getting far more numerous and living longer, making it harder to support them.

President Bush says that given the most plausible projections, the program will be bankrupt by 2042. His critics insist that picture is overdrawn, since the system will be able to pay three-quarters of promised benefits even in that scenario.

Where liberals are on firm ground is in saying that the gap can be closed with some modest fiddling - pruning benefits, raising taxes, expanding the payroll tax base, nudging the retirement age upward or some combination of these.

President Bush has entertained the idea of indexing retirement checks to prices rather than wages, which would slow the increase in outlays but would leave benefits exactly the same, in inflation-adjusted terms, as today. Let me repeat: exactly the same. Yet Senate Democratic Leader Harry Reid of Nevada lambasted this suggestion as a "benefit cut of 40 percent or more."

This "cut" is not a real cut, it turns out, but a cut in the rate of growth. It doesn't mean future retirees would be getting less - only that they wouldn't be getting far more.

If Congress is willing to go along with the administration in taking steps to contain the burgeoning cost of Social Security, the long-run funding gap can be closed. By cutting back its promises, the system can survive to keep old people out of poverty.

But any change that helps this problem aggravates the other big flaw in Social Security: Viewed as an investment, it's a lousy deal for most workers. Urban Institute economist C. Eugene Steuerle has calculated that even if the system were to pay all the benefits it has promised, a middle-income 40-year-old single man would get a pitiful 1 percent return on the investment. A typical dual-income couple would get just 2.3 percent. Any trimming of future benefits would make things even worse.

Mr. Bush's proposal, which would let younger workers divert some payroll contributions to private investment accounts, is bound to offer better returns than those. And by putting strict limits on how the money can be invested, it would minimize the alleged risk of private investments, which sends critics screaming from the room.

The administration plan certainly deserves thorough scrutiny. But at least the president is trying to address both of the system's weaknesses. The Democrats may protect retirees against Dr. Jekyll, but who will save us from Mr. Hyde?

Steve Chapman is a columnist for the Chicago Tribune, a Tribune Publishing newspaper. His column appears Mondays and Wednesdays in The Sun.

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