Social Security Needs Reform Now

Wed., Dec. 11, 1996

John Webster For The Editorial

What will today’s working people get in exchange for their Social Security taxes? Nothing. Zip. Zero.

Social Security is not a savings program. It’s an income-transfer program. It takes money from today’s workers and hands it to today’s retirees. Revenue that doesn’t go to today’s retirees is borrowed by the government to finance today’s deficit spending.

Three trends threaten Social Security’s future, raising its costs and undercutting its revenues:

1. Medical progress enables elderly Americans to live longer.

2. Automation and global competition are undercutting wages in the good-paying jobs of America’s past.

3. Most important, the ratio of workers to retirees is plummeting. In 1950, there were 16 workers per retiree. Now there are four. By 2030, there will be two. Who will finance baby boomers’ retirement? Their small, debt-ridden, divorce-fragmented families?

In 2013, Social Security’s revenues will fall short of its costs.

Between now and then, every year counts. The longer we wait, the more drastic the reforms will have to be.

Major reform has been stymied for the sake of current retirees. But if current benefits must be preserved, the payroll tax eventually must be doubled. Future wagearners won’t sit still for that. Already, at 15.3 percent for the self-employed and 7.6 percent for other workers, the Medicare/Social Security tax is terribly regressive. Seventy-one percent of Americans - the poorest 71 percent - pay more to this tax than they pay to income tax.

It is time for an informed national debate - it will be fierce - culminating in reform for this essential, justly popular program.

The options? Raise the retirement age. Reduce the annual benefit increase, to reflect a more accurate consumer price index. Finally, shift to a two-part system, blending a modified income transfer with a mandatory savings plan; workers could guide investment of their savings. The stock market’s historic rate of return (more than 10 percent) could make a handsome nest egg of the lifetime Social Security taxes from even a low-wage career.

But there’s a dilemma: How could current retirees be protected while the system shifts from an unsustainable transfer of earnings to one that accumulates real, personal capital?

The best solutions would phase in gradually. So they’ll have to begin soon. The next century’s pensioners - today’s taxpayers - ought to demand that reform start now.

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