- The Washington Times - Thursday, April 27, 2000

A lot of people felt a sigh of relief recently when the Social Security Board of Trustees announced that a strong economy has postponed the date of that program's financial collapse by three years, until 2037.
Good news? Yes, if you believe that Social Security's trust funds are real. But as Sen. Ernest Hollings, South Carolina Democrat, once said about the trust funds, "There is no trust and no fund."
The report makes clear, beyond any doubt, that Social Security is unsustainable in the long run and needs to be redesigned. Here are some key reasons why:
(1) Program structure. When you deposit money in a bank account, that money represents real assets that belong to you. When workers pay in to Social Security, that money is immediately sent out to pay current benefits. Any surplus revenue is either spent or used to pay down public debt. In return, the trust funds are issued non-marketable bonds.
The pay-as-you-go system has worked well since the early 1980s because workers have been paying in more than Social Security is paying out. That will change starting in 2015, which is when the program's financial crisis really begins. Since there are no assets behind the growing stack of IOUs, the taxpayers will have to make up the difference.
(2) Changing demographics. In 1950, there were 17 workers per beneficiary. Today there are 3.4 workers, and by 2030 there will be about two workers per beneficiary.
The reason for the change? Seniors are living longer, healthier and more productive lives. In addition, the Baby Boomers begin retiring around 2010, withdrawing money rather than contributing it.
The ramifications? To pay all promised benefits over the next 75 years, the Social Security payroll tax would have to rise from 12.4 percent to about 19 percent a 50 percent increase. The other alternative would be to cut benefits by one-third, or some combination of the two.
(3) Massive deficits. Social Security will begin running huge deficits in just 15 years. At first the deficits start out small, then balloon rapidly. In 2015, the deficit in inflation-adjusted dollars will be an estimated $7 billion. In 2020, the deficit jumps to $187 billion, and in 2030 it's a staggering $261 billion.
(4) A bad deal for workers. If forced to remain in the current system, the children and grandchildren of today's retirees face dim prospects for their own retirement years. For most young workers, the real rate of return paid by Social Security will be 1 percent or less.
(5) A declining economy. We are now in the longest period of economic expansion in the nation's history, but it won't last forever. Since we haven't repealed the business cycle, an economic downturn is sure to come at some point.
The good news in the Trustees' report is that Social Security is projected to run huge surpluses for the foreseeable future. While Congress and the president are doing the right thing by "locking away" these surpluses and not spending them, the best use for this money is to begin the transition to a system of personal retirement accounts (PRAs).
Using the surplus this way not only creates the ultimate Lock Box one that can never be picked it also gives younger workers the opportunity to accumulate substantial wealth during their working years and to retire with true financial security.
While politicians talk all the time about the need to reform Social Security, only a few are willing to do anything despite the fact that polls show Americans overwhelmingly want PRAs. The reason is that opponents prey on the fears of our seniors and always accuse reformers of trying to destroy the Social Security program. It is very hard for a politician to defend himself against such an accusation. As a result, little or nothing gets done.
But time is not on the side of those who defend the status quo. Because of Social Security's pay-as-you-go system and changing demographics, politicians will be forced eventually to raise taxes and/or cut benefits drastically. And then instead of looking to take the credit, they will all be looking to spread the blame.

Sandra L. Butler is president of the United Seniors Association.

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