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[Gene GeRue <genegerue AT ruralize.com>]

Easy fix for Social Security

David Lazarus

Friday, March 25, 2005

The overseers of Social Security issued their annual report about the 
system's financial prospects the other day, and Republicans and Democrats 
wasted no time in trying to score political points.

The report says Social Security's current surplus will be depleted by 2041, 
a year earlier than previously estimated but essentially the same problem 
we had before -- lots of benefits being handed out to Baby Boomers and not 
enough cash to pay the bill.

Treasury Secretary John Snow reiterated the White House line that Social 
Security is in crisis. "Reform of this system, for the sake of our 
children, grandchildren and the financial future of our country, is a very 
real and pressing matter," he declared.

House Minority Leader Nancy Pelosi reiterated the Democrats' line that 
while Social Security faces "a challenge down the road," Republicans are 
creating a false sense of urgency "to justify a privatization plan that is 
unaffordable, unnecessary and unwise."

As usual, neither side is proposing any real solutions.

So I turned to someone in a unique position to comment on Social Security's 
funding woes: Steve Goss, the Social Security Administration's chief 
actuary, the system's number-cruncher-in-chief.

He told me this week's report doesn't contain much that's new. "On balance, 
there was very little change," Goss said. "The deficit is still very much 
the same."

But that's not to say we aren't facing a big, big problem. Social 
Security's funding shortfall over the next 75 years will run about $4 
trillion. The deficit for its sister program, Medicare, will balloon over 
the same period to a staggering $28 trillion.

Goss acknowledged that it would be prudent from a budgetary standpoint to 
tackle both problems simultaneously. But politically speaking, that's 
probably not realistic.

"It would appear reasonable that looking at things on a combined basis 
would make sense," Goss said. "We would settle for dealing with them one at 
a time."

So what's to be done?

President Bush has been traversing the country trying to drum up support 
for his plan to partially privatize Social Security, allowing people to 
steer a portion of their payroll taxes into private accounts.

Whatever the merits of such a proposal, it does nothing to address Social 
Security's cash crunch. If anything, private accounts would only make 
things worse by siphoning off money from the pension pool.

Bush acknowledged this week that his plan is "not the way to fix the 
system" but is instead "a way to make the system better for the individual 
worker."

"It's going to require other matters to fix the system," Bush said during a 
stop in Arizona.

And though Bush won't say it, and though his Republican colleagues won't 
say it, and though the Democrats won't say it, there are in fact only three 
ways Social Security can be salvaged.

Raise taxes. Cut benefits. Or both.

I asked Goss what he thought about an appropriate remedy, but, like just 
about everyone else in Washington, he didn't want to be the first to bite 
the bullet. Besides, he was quick to emphasize that he and his team are 
analysts, not policy-makers.

"We do not espouse that there is a better or worse solution to the problems 
that we face here," Goss said. "That's the job of elected officials."

Well, what if we tried something as simple as doing away with the current 
cap on taxable earnings? As it stands, workers pay a 6.2 percent tax on 
everything they make up to $90,000 (their employers pay an equal amount).

The upshot is that someone making $50,000 a year pays the full 6.2 percent 
into the Social Security system, while someone making $5 million a year 
pays only about 0.1 percent.

Goss may not espouse a particular solution, but he has run the numbers down 
his slide rule. And getting rid of the $90,000 cap would have a dramatic 
effect on Social Security's 75-year, $4 trillion deficit.

"It would eliminate the deficit entirely," Goss said.

Better still, it would even leave the program with a surplus, at least 
until 2090 or so.

--The rest of the story is at:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/03/25/BUGGRBUARF1.DTL