By JAY AMBROSE
SCRIPPS HOWARD NEWS SERVICE
President Bush said in his State of the Union speech this week that Social Security is heading toward bankruptcy, and astonishingly, Democrats sitting in the House chamber booed. It was as if there had been a warning system in Indonesia that a tsunami was coming, but instead of running for their lives when it sounded, those on the beach cursed the thing. Smugly, stupidly cursed it.
If the Democrats stick with this denial and are actually able to defeat reform through the pretense that nothing much is amiss, the nation eventually will learn the hard way just how right Bush was in his analysis. It's not just the system itself that will be jeopardized by inaction. The whole federal budget itself is at stake, along with something else that matters more than just a little bit: the American economy.
As Bush pointed out, Social Security is a pay-as-you-go system. Despite Franklin Roosevelt's trickery to the effect that each worker had his own account, the truth has actually been that workers transfer a portion of the money they earn to Social Security beneficiaries. For a long time, this way of things has worked. People didn't use to live as long as they do now and young people vastly outnumbered retirees. For every beneficiary, there were 16 workers contributing payroll taxes to the beneficiary's pocketbook.
Then there was this development called the post-war baby boom, and on top of that, vast numbers of people are now toting up four-score years of age and more. Today, we have three workers supporting each beneficiary. In a few more decades, Bush reminded us, there will be just two. A colleague of mine joked in a column once that each retiree would ultimately be dependent on just one worker. Choose your worker well, he joked -- make sure this person is healthy, ambitious and well-equipped to earn a robust wage.
But of course it is no joke that, by 2018, the amount due beneficiaries will outstrip the amount coming from the payroll taxes of workers. It will be double-whammy time. On one end, you will have to come up with tens of billions of dollars to pay the retirees, and on the other end, you will have to come up with tens of billions of dollars to help finance all those other programs in the federal budget that were supported in part by the Social Security surplus.
Some people think the answer to the first part of the problem, at any rate, is simple. You just turn to the trust fund and take all those Social Security surpluses that have been mounting up over the years. The problem is that the trust fund is essentially a lick and a promise, not a collection of assets. To get the money without prior reform, you are going to have to either tax or borrow or some combination of both, and the kicker is that the amount will be enormous and keep growing more and more each year. We're talking trillions and trillions over time, folks, and if you tax and borrow as much as would be required, you will wreck the economy.
What you will have to do instead is reduce the amount to be paid to beneficiaries along with maybe finding additional means of providing for them besides taxes or borrowing. There is a need to act quickly, making sure to hold safe anyone now receiving benefits or within a decade's reach of them, so that those affected by adjustments have time to adjust themselves. Bush threw out several possibilities suggested in the past by Democrats, such as tying the amount of benefits to prices rather than wages or increasing the retirement age.
Bush has another, excellent idea. It is to establish voluntary, individual retirement accounts for younger workers. When the proposition is brought up, any number of seemingly sophisticated commentators practically do back flips to show they don't understand something basic. They avow that if you allow this money to be invested, you are removing it from Social Security. But you aren't. Along with the interest it will almost surely earn over the years, it will be used to pay future retirees. It stays in the system.
Day of reckoning
It's true that the portion that goes for the accounts won't be available to pay current retirees and that we are thus brought closer to the day of reckoning. That day of reckoning, however, is certain to come at any rate, and, meanwhile, the accounts will do something significant to fix and improve Social Security over the decades ahead.
X Jay Ambrose, formerly the Washington director of editorial policy for Scripps Howard Newspapers and editor of dailies in El Paso, Texas, and Denver, is a columnist living in Colorado.