- The Washington Times - Friday, July 20, 2001

President Bush's Social Security reform commission released a report yesterday that paints a bleak picture of a system plunging into crisis, facing benefit cuts, higher taxes and massive borrowing unless it is changed to let workers build wealth through private, long-range investments.
In an interim report that describes the financial and social catastrophe that will hit the federal government's biggest social welfare program, the panel's two co-chairmen made it clear that the president's proposal to permit private Social Security investment accounts in stocks and bonds was the only viable way to save Social Security and keep it financially strong.
"For the first time, the program can become an active rather than a passive instrument of personal financial security," former Sen. Daniel Patrick Moynihan, New York Democrat, and Richard D. Parsons, chief operating officer at AOL Time Warner, said in an introduction to the draft report.
"Rather than ending with the life of the beneficiary, it can be a means of wealth accumulation and long-range investment, giving families resources they never had before, and widening the circle of Americans fortunate enough to pass on the accumulated results of their investments and hard work," they said.
The 16-member commission, which will finalize yesterday's draft when it meets Tuesday, has been asked by Mr. Bush to devise a plan to let workers voluntarily put a portion of their Social Security payroll taxes over their working life into their own personal retirement accounts.
The commission will deliver its plan to do that sometime this fall, but yesterday's working draft, drawn up by its staff, was aimed at describing the enormous financial problems that beset the New Deal-era program, which now faces a $12 trillion liability.
"The system is broken. Unless we move boldly and quickly, the promise of Social Security to future retirees cannot be met without eventual resort to benefit cuts, tax increases or massive borrowing," the chairmen said.
Longer life expectancies, falling birth rates and fewer workers per retiree are squeezing the system, driving it toward bankruptcy, the report said. Sixty years ago there were 42 workers paying into the program per retiree. In 1960, there were five workers for each beneficiary. Today, there are little more than three workers per retiree, and that ratio will fall to two within a generation.
When millions of baby boomers begin retiring and claiming their Social Security checks in 15 years, the system's finances will begin to unravel, running into a deficit in 2016 and becoming insolvent by 2038.
The problems the report spells out have been documented in numerous government studies, but the commission provided much more detail yesterday about the difficulties facing Americans who depend on Social Security for their old-age benefits. In most cases, the rates of return will be little more than 1 percent to 3 percent.
"Under the existing system, Social Security will provide a bad deal for today's young workers," the report said. A single male worker born in 1970 earning the median wage would get a real rate of return of 1.13 percent on the payroll taxes he paid, according to the report.
People just entering the work force now "would have to live well past their expected lifetimes to receive back the value of their contributions," it said.
A major complaint in the report is that contrary to the belief that each worker's payroll taxes go into an investment account called a "Trust Fund," Social Security is not based on any real financial assets.
"Today's beneficiaries are not living off financial assets accumulated in the past. Today's workers are not accumulating financial assets for the future. Workers 'invest' their payroll taxes not in financial assets but in the willingness of future politicians to tax future workers to pay future benefits," the report said.
This point was underscored by the commission's co-chairmen, who said that "workers and retirees have no legal ownership over their Social Security benefits. Instead, what they have is a political promise that can be changed at any time, by any amount, for any reason."
"In any retirement system, a lack of legal ownership is a source of insecurity. In one that is under-financed by over 25 percent, it is a problem on its way to becoming a crisis," they said.
Raising the question of ownership and the political uncertainty about what future Congresses may do to the program goes right to the heart of Mr. Bush's personal retirement plan.
Under his plan, workers would own their retirement accounts and could pass the assets on to their heirs.
The report also focused heavily on minorities, especially blacks and Hispanics, who tend to do worse under Social Security because of lower incomes and shorter life expectancies.
Black Americans "receive nearly $21,000 less on a lifetime basis from Social Security's retirement program than whites with similar income and marital status," the report said.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide