To: "homestead AT lists.ibiblio.org" <homestead AT lists.ibiblio.org>
Subject: [Homestead] Easy fix for Social Security
Date: Fri, 25 Mar 2005 07:43:30 -0700
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.