Debate on Social Security Likely Tonight
WASHINGTON 10/8/04- One of the issues that is likely to come up during the final presidential debate which focuses on domestic topics is the future of the Social Security system, a subject in which both of New Hampshire’s senators have a keen interest.
Social Security reform is also a subject in which there are sharp differences between the two presidential candidates. President George Bush has not proposed specific Social Security reform, but has said he supports the creation of personal retirement accounts. Sen. John Kerry opposes privatization of any kind for the Social Security system.
Many have suggested the Social Security system faces an imminent crisis but several policy experts interviewed for the article agreed that the system will be able to deliver benefits to current retirees for the next decade or so without problem. However, they say that reform in the coming years will be essential to ensure that younger workers receive benefits from the system when they are ready to retire.
“To call this a crisis is a little bit like saying your roof is going to blow off in 40 years. It may not be a problem for you or your children, but certainly will be a problem for the person 40 years down the road,” said Gary Burtless of the Brookings Institution, a liberal-leaning think tank in Washington.
Current Social Security recipients’ benefits are paid from the payroll taxes taken from the wages of working Americans. According to the Social Security Administration 2004 Trustees Report tax revenues will fall below program costs in 2018, meaning not enough people will be working and contributing taxes to cover the number of people who are retiring.
At this point, benefits could continue to be paid from the Trust Fund, the fund in which surplus from payroll taxes is collected, until 2042. But this isn’t a fund in the sense that money is kept untouched for future generations. Currently the surplus raised from the tax is spent like any other tax, on government programs, and replaced by Treasury bonds.
Two of the most vocal proponents for Social Security reform have been New Hampshire’s senators, Judd Gregg and John Sununu. Gregg, in 1999, sponsored the Bipartisan 21 st Century Retirement Security Act, which proposed allowing two percentage points of the current 12.4 percent payroll tax to finance personal retirement accounts. He reintroduced the measure last session but no action was taken on the bill.
A month ago, Sununu introduced the Social Security Savings Act, which would allow for 10 percentage points of the payroll tax on the first $10,000 of wages each year to be contributed to a personal retirement account. On wages above that, 5 percentage points could be shifted into the accounts. The plan is voluntary and people have the option of staying in the existing system. The plan has been ranked by the chief actuary of Social Security as achieving permanent solvency for the program.
Gregg said that though current retirees have nothing to worry about, the system is headed for a dramatic crisis, and those who are contributing to the system today will pay more than they ever get back if something is not done.
He said he has found that younger people, those under the age of 40, have been receptive to the idea of personal retirement accounts.
“People understand you can take some portion of the (payroll) tax and save it,” said Gregg. “It will be their money and they will own the fund it is invested in.”
Both Sununu’s and Gregg’s plans call for investment in funds that are regulated by the government for safety and soundness.
Sununu said that the long term returns on these investments has been steady through the years, and said every major poll he is familiar with has shown broad support for allowing workers to devote some of the tax to private savings accounts.
David John, of the Heritage Foundation, a conservative think tank in Washington, said Sununu’s plan has one of the best administrative structures he’s seen.
“The structure provides a simple, low-cost structure for these accounts,” said John. “The worker would get the maximum value for their money. It doesn’t allow gambling and provides some real retirement.”
But one of the issues with the transition to personal retirement accounts, experts agree, is the short-term cost.
According to Burtless, the problem with allowing personal retirement accounts is faced in funding current Social Security recipients. If money is withdrawn from the system, someone has to make contributions or pay taxes that cover the existing system liability.
“If you’re going to have these individual retirement accounts, you still have to pay into the promise for people who are already retiring,” said Burtless.
Evelyn Morton, national coordinator for economic issues for AARP, said the organization does not support taking money from the payroll tax to finance private accounts. She said she has found that people’s initial reaction to the idea of private savings accounts is positive, but said they should be wary of transition costs.
“What they don’t understand is that in order to finance these accounts, there’s a transition,” said Morton. “If you’re 49 years old, you’re not going to have as long to build up your account as a 25-year-old.”
John said that if a system of personal retirement accounts is established, the additional money needed to pay retirees will be needed sooner than it is under the existing system, but the total amount that would be needed in decades to come would be significantly less.
Sununu’s plan allows the prior contribution of those under 55 who opt for personal retirement accounts to be credited to future benefits. After the transition period workers would continue to pay a small amount into the trust fund to pay for disability and survivor benefits and guarantee minimum benefits.
“The proposal we’ve put forward ensures long-term solvency for Social Security,” said Sununu. “To say that it [his plan] is expensive. is ridiculous.”
Opponents of creating personal retirement accounts say that taking money out of the existing system and putting it into private accounts makes the solvency issue worse.
“Social Security is becoming the only thing you can count on,” said Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare. “The truth of the matter is everyone has 401Ks and we already have the ability to save and invest if we want.”
Despite disagreement over whether personal retirement accounts are the right answer, most people admit changes must be made to insure the Social Security system’s future solvency.
