Next step for Social Security

As the program turns 75, let's celebrate by rethinking our system of retirement planning

August 12, 2010|By Andrew L. Yarrow

Old enough to retire, but still working hard. Extraordinarily popular. Has served America, helping countless people. About to celebrate a milestone birthday, but poised to embark on new challenges to serve the nation better and more efficiently.

Sounds like a senior's personal ad? It might make a good one, but it would hardly draw the tens of millions of people who love, rely on, and think about the subject of this short blurb.

Our hero and object of affection? Social Security, which turns 75 Saturday.

We may blast government spending (and no government program in the world spends more than Social Security) and snarl at entitlements. We may enumerate the many things wrong with a program that may be inequitable to the young and the lower and middle classes, that may be raided to mask deficits even larger than the ones the government owns up to, that may discourage work (and, thus, higher national income and federal revenues), and that may gobble up 5 percent of GDP better spent on education, energy, the environment or national security while still leaving millions of elderly or disabled Americans with insufficient income.

Yet, we absolutely love it — more than any other U.S. government program. While the young widely assume it will be dead by the time they would be eligible, and experts (including the President's National Commission on Fiscal Responsibility and Reform, due to report in December) have many ideas to reform and sustain Social Security, most politicians don't want to touch it. It's long been called the "third rail" of American politics: Touch it, and adios Washington.

However, after we rightfully acknowledge Franklin D. Roosevelt's achievement in winning overwhelming, bipartisan support (a 77-6 vote in the Senate!) for the Social Security Act that he signed into law in1935, this is no time to sit around popping the champagne and cutting the cake. Social Security — this esteemed, aging figure in American life — needs to use this birthday to begin making significant changes so that it can live on at least another 75 years, albeit with a modestly changed modus operandi.

Let's breeze through the familiar recitation of Social Security's problems: It spends too much, with trillions of dollars of unfunded liabilities in the decades ahead. It will have insufficient revenues to pay benefits, as the ratio of workers to beneficiaries is declining. The population is aging, and Americans spend decades in retirement. It doesn't sufficiently tax the highest earners, and the pay-as-you-go payroll tax is a flawed revenue raiser in many regards. It's unfair: Bill Gates and the wealthy can draw Social Security they don't need, while tens of millions of middle-class and poorer Americans scrap by on average benefits of barely $1,000 a month. What's more, the other traditional supports for retirement security — private pensions and savings — have withered during the last 25 years, putting undue burdens on Social Security.

Some think we should ditch much of Social Security and the very principal of public pensions in exchange for private accounts, while others assert that fiscal Chicken Littles decry a problem that barely exists. Some equate reform with "weakening" the safety net upon which 52 million older and disabled Americans depend. Others say that without drastic reforms, America will be immeasurably weakened within a generation. None are right.

Social Security's benefits and revenue structure is off-kilter, as are its built-in perverse incentives and its suitability for a population that lives 15 years longer than when FDR signed the act. But they are no more broken than a house that needs a little redesign and sprucing up. Unlike health-care cost control — the key issue for debt reduction, which was all but ignored in the recent health-care reform law — the entire house need not be torn down, and Americans could benefit from the changes.

One fairly painless proposal by the National academies of Science and of Public Administration would achieve solvency by taking these steps over the next 40 years: leave benefits the same for low earners, allow a 13 percent (instead of 39 percent) increase for middle-income earners, trim benefits for the top one-fifth of earners and raise the payroll tax by merely three-quarters of 1 percent on both workers and employers. If we added indexing benefit eligibility to rising life expectancy, ending the tax exclusion for higher-income workers, and taxing new state and local government workers, it would only add to the kitty, we could see greater benefit payments and greater fairness.

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