Scott Withycombe
Perspectives Assistant
“Today Social Security is strong. But by 2013, payroll taxes will no longer be sufficient to cover monthly payments. And by 2032, the trust fund will be exhausted, and Social Security will be unable to pay out the full benefits older Americans have been promised … I propose that we make the historic decision to invest the surplus to save Social Security,” a senior government official commented.
Despite the familiar rhetoric, it was not President Bush or any member of his administration. In fact, it was not even a member of the Republican Party. In his 1999 State of the Union address, President Clinton announced that the New Deal entitlement program faced a certain fiscal crisis. Today, as the debate over the future of Social Security heats up, the former president’s party is pulling one of its famous flip-flops.
Today, members of the Democratic Party are no where near as committed to saving Social Security as Clinton apparently was — they seem to believe that the crisis the program faced in 1999 has simply disappeared a mere six years later. They have even accused Bush of “creating a crisis” to destroy the beloved brainchild of FDR. The problem is that if the United States government does not reform Social Security the program will destroy itself.
The facts are just as clear today as they were in 1999. According to the Congressional Budget Office (CBO), “Under the current law, outlays for Social Security will rise from about 4.4 percent of GDP today to more than 6 percent of GDP 30 years from now … By contrast, federal revenues dedicated to Social Security are expected to remain close to their current level — about 5 percent of GDP — over that period. As a result, outlays are projected to begin exceeding revenues in 2019, with the gap growing ever wider thereafter.”
This is not a minor problem; this is bankruptcy. If government does not address this problem, if it leaves Social Security untouched and continues to spend at its current rate, the United States will be forced to either default on its largest outstanding debt or tax its citizens at unprecedented and astronomical rates. The result would be catastrophic for the stability of the domestic and global economy.
The crisis facing Social Security may in fact be the greatest threat to the security of the United States and the longevity of American primacy. In a recent book, British financial historian Niall Ferguson presents the findings of a study commissioned by former treasury secretary Paul O’Neill. In it, the authors were asked to determine what the shortfall would be if the United States government could collect all of its expected future revenue and had to use it pay off all its expected future expenditures. They determined that the discounted present value of all future expenditures would exceed the discounted present value of all expected future revenue by 45 trillion dollars. According to Ferguson, this number is 12 times larger than the public debt and nearly four times greater than the United States’ annual output.
This is clearly a looming crisis.
I am not a fan of Social Security — I am not a fan of giving any of my money to the government and I especially do not believe that they will spend or invest it better than I will. Further, I think that the program has created a false sense of security for those approaching old age. It was never meant to be a full-fledged retirement plan in the sense that no one should expect Social Security benefits to comfortably cover the costs of living after retirement just as no one should expect the minimum wage to function as a standard-of-living wage. Both instruments are security nets, resting places for those falling on hard times, not trust funds or salaries for sustained livelihood. Both are inefficient in the sense that the minimum wage negatively effects employment and Social Security creates a disincentive to responsibly plan for retirement through investment in the private sector (and for employers to provide quality retirement plans).
Unfortunately, it is too late to simply scrap Social Security, and putting aside some of the more Machiavellian arguments that many probably believe I cling to, there are significant moral reasons for protecting the program. We do have a commitment to those who have already paid into the system and it is noble to provide a safety net for our seniors. In preserving the moral objectives of Social Security, we should strengthen them by making the program more lucrative for future generations. Bush has asked for bipartisan cooperation to do this, and now it is time for Congress to answer his call and the demands of our time to rise up and meet the challenge.
The President’s plan for voluntary personal accounts is an excellent place to start reforming the program in that it will protect the debt owed to our retirees and make the program more appealing to young workers. Despite all the rhetoric coming out of the Democratic Party, allowing people to place money in small, private accounts is not risky. The accounts will be well regulated and only allow for investment in conservative bonds and stock funds. While I believe that total privatization of the program would yield greater results in terms of efficiency, investment incentive and profitability, the President’s proposal at least allows for more ownership and choice than does the current system.
Ownership and choice are American — not partisan — values and the sooner the Democratic Party remembers the warning of President Clinton, the faster the American government will truly be able to provide “Social Security” for our seniors.
2-17-2005