Missing the point . . . and the options

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The 2004 campaign is under way, and finally the political world has turned its attention to the single most important domestic policy issue we face: Social Security.

In comments before the House Budget Committee on Wednesday, Fed Chairman Alan Greenspan inadvertently ignited a firestorm that spooked the media, frightened retirees and put the election-year spin machines in high gear -- all because he told the truth.

Mr. Greenspan railed against mounting government debts. He expressed special concern about the huge longer-term debts associated with Social Security and Medicare. He suggested that future Social Security benefits could be cut to reign in the long-term Social Security debt, which will materialize after the Baby Boomers begin retiring in 2010.

The message being filtered to through the news media, however, is that Mr. Greenspan is suggesting that high budget deficits in other parts of the government can be reduced by cutting Social Security benefits. That has everyone scared -- without cause.

The AARP said, "The notion that Social Security should be a prime target to fix future budget deficits that are unrelated to the program is irresponsible." Democratic presidential hopeful John Kerry said "the wrong way to cut the deficit is to cut Social Security benefits." Senator John Edwards said that "it is an outrage" for Mr. Greenspan to suggest that Social Security benefits be cut.

Unfortunately, they are all missing the point.

Mr. Greenspan should be saluted for initiating a discussion over the future of Social Security, and the need to address the problems sooner rather than later. True, other parts of the federal budget are facing deficits. The deficit for last year alone was near $500 billion. But that pales in comparison to the long-term debt faced by Social Security.

According to the Social Security Administration, in just 14 years -- in 2018 -- Social Security will begin paying out more in benefits than it collects in payroll taxes. From that point on, Social Security will run increasing annual deficits. If you add up all the deficits for the next 75 years, Social Security faces a long-term debt of more than $27 trillion.

By mid-century, we will have to cut Social Security benefits by more than a quarter, or raise taxes by 36 percent. By 2070, we will have to cut benefits by a third or raise taxes by half.