Posted on 03/30/2005 1:59:14 AM PST by Cincinatus' Wife
Take a few minutes, please, and freak out. Run in circles, scream and shout. Panic if you are so disposed. And then, when the hysteria subsides, we should talk.
Whatever Social Security once was — and it never was insurance, funded by contributions kept in a trust fund — it has been fundamentally altered by generations of vote-grubbing politicians into something distinctly different. It's an entitlement, onto which other entitlements, like Medicare, have been heaped. It is, as actuaries told trustees last week, unsustainable as structured.
It's silly, actually, to talk about trust funds as though they exist as anything more than bookkeeping entries. The truth is that as of this year, the payroll tax used to pay Social Security benefits, plus premiums collected from Medicare, will be insufficient to pay all the bills, without a cash transfer from the general fund.
Medicare is financed by a combination of the payroll tax, premiums paid by beneficiaries, and general tax revenues. Even when Medicare's problems are considered separately, by 2017 the basic Old-Age and Survivors Insurance Trust Fund, which pays retirement and survivors' benefits, and the Disability Insurance Trust Fund, which pays disability benefits, are bankrupt — paying out more than they're taking in.
"There's a time in the life of every problem when it's big enough to see and small enough to solve," said Michael Leavitt, a Social Security trustee as secretary of Health and Human Services, in Cobb County last week.
"This is a very significant national issue the president has chosen to carve off, and in my judgment it takes enormous statesmanship to do it. Conversations like this take time. Anyone who's been in politics knows that people have to hear things six, seven, eight times before the issue penetrates the clutter of the lives we live, and then begin to have it register, and then begin having conversations with their peers and their family members. And, they need to have some discussions at work and around the water cooler, and then it begins to germinate. We are at the very beginning of that process.
"I think it will begin to register first with those who have the most at risk, and that is those under 55 . . . This is a large-scale issue. It ought to take time. It's something we ought to have full discussion about."
The most novel of the president's proposed solutions is personal savings accounts, which will be modeled after the thrift savings accounts federal employees have had for two decades.
Andrew Biggs, associate director of retirement policy at the Social Security Administration, explains how personal savings accounts would work. The idea is that they would be very simple, says Biggs, with a limit of five or six accounts with basic investments in stocks, corporate bonds or government bonds.
"You don't have to know a growth stock, or a value stock from a large cap stock or a small cap," says Biggs. "You really just have to know the difference between a stock and a bond and decide which is for you. The options will be very, very easy to understand."
Administration will be centralized and independent, and management fees kept low — existing fees on federal workers' accounts are below any existing mutual fund, Biggs says. "Because they will be managed through a central process, you wouldn't have the danger that somebody is going to call up your grandmother and try to sell her on a stock investment that she might lose a lot of money on." Investors are forced to diversify and would not be allowed to buy single stocks or single industries.
At age 47, accounts would begin to shift from stocks to bonds, to reduce the risk of stock market fluctuations affecting retirement decisions.
Admittedly, personal savings accounts don't solve the solvency problem. That has to be addressed as the system is allowed to change into something that will give young and future workers ownership. U.S. Sen. Johnny Isakson (R-Ga.) spells it out:
"The president has said for those under 55 that we're going to allow them to self-direct a portion of their payroll taxes they pay into a personal account in order to build a nest egg to help make up the difference between the failure of the promises of the future and the realities of it."
A nest egg to make up the difference between promises and realities. Surely we don't have to hear that six, seven or eight times before it starts to make sense, especially to those who are young.
Jim Wooten is associate editorial page editor. His column appears Tuesdays, Fridays and Sundays.
Yes, there is no trust fund. Or, the "trust fund" IS the U.S. Treasury. S.S. etc. are "entitlements", which must be paid and paid first. The future average benefit will be: Whatever it takes, baby, whatever. That's the way it's done and it's not likely to change.
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