President Bush has opened debate on the issue of 2005, the future of Social Security
President Bush outlined more than a dozen proposals in his State of the Union address Wednesday night, but he went on the road yesterday and today, visiting five states, to talk about only one issue, Social Security.
So, for the time being -- or at least until the president submits his budget later this month -- just about everything besides Social Security will be on the back burner. Among those issues will be making permanent those tax cuts that face sunset dates, eliminating 150 federal programs that the president says have been a waste of money, improving education, stabilizing Iraq and reducing our troop strength there, pursuing the war on terrorism, reforming tort law (especially regarding medical malpractice suits), passing a marriage-protection amendment and addressing immigration issues (which he couched in terms of giving immigrants who want to work the opportunity to do jobs Americans won't do).
Even though it is only a partial list, that is quite an agenda.
Top of the list
But Social Security tops the list, as evidenced by the president's going on the road, by the quick response of his opponents and by the fact that about 48 million Americans are receiving Social Security checks each month, and that number will grow to 84 million in 20 years. That's a lot of Americans. Their numbers are dwarfed only by the number of workers who see thousands of dollars being deducted from their pay each year for Social Security.
Every one of those Americans should have a lot of questions about Social Security, its solvency and how various proposals to "save" it will work.
The centerpiece of the president's proposal is "ownership" in the way of individual accounts that are built up and managed by each wage-earner. This is an attractive proposal, but it is important to note that privatizing Social Security does nothing to address potential shortfalls in the funds needed to pay Social Security benefits to tomorrow's retirees. To the extent that such private accounts grow faster or slower than the cost of living, individual account holders might do better or worse than they would have under the Social Security plan that has been in existence for 70 years.
What private accounts undoubtedly do is change the nature of the program.
Today, Social Security is something of a gamble. If you are incapacitated at a young age, die when your children are young or live to a ripe old age, your Social Security payments will have turned out to be a good investment. If you die shortly after retiring, you paid in a lot more than you got to take out.
But that was the nature of the plan. It was designed to provide a stable income for people when they could no longer work. And it is one of the reasons that poverty rates among the elderly fell consistently through the second half of the 20th century.
Shifting some of that money to individual retirement accounts will mean that there will be less money for those who live long lives, but those who die young will get to bequeath part of their Social Security assets to relatives, friends or charity. It will be their money.
If that's what the American people want, then so be it. But the debate over private accounts should be on the value of shared social contract versus private ownership, not on whether privatization will save Social Security.
And the debate should be vigorous, because the implications of privatization could be enormous. Social conservatives, for instance, may find private accounts objectionable because they would allow unmarried couples, regardless of gender, to transfer their accounts to their domestic partners. Log Cabin Republicans and liberal Democrats may find that the most attractive thing about private accounts.
The point is that when fundamental changes are made in a 70-year-old program there are bound to be unintended consequences.
Wage-earners and taxpayers may also want to take a closer look at other countries that have gone the privatization route. Some have been successful, some not and almost every one of them involves higher withholding taxes than the U.S. Social Security program does. In the United States, the employer and employee each contributes 6.2 percent of wages to Social Security. The Wall Street Journal reported Thursday that withholding for privatized programs range from Chile, which is almost exactly the same as the United States, to Sweden at 18.5 percent, Argentina at 23 percent and Singapore at 33 percent.
They might also want to consider the effect that borrowing to cover privatization costs had on Argentina's already troubled economy when it made the transition. It contributed to Argentina's economic collapse. President Bush is estimating the transition cost in the United States at less than $700 billion, which is manageable; others have set the cost as high as $1 trillion over the first 10 years and another $3.5 trillion over the next 10 years. Those are troubling numbers.
President Bush has begun the debate. It should be long, vigorous, thoughtful and -- it can only be hoped -- productive.