- The Washington Times - Saturday, August 5, 2006

Richard Rahn’s commentary of July 27 (“In case of bankruptcy…”) begins with the flawed premise that Social Security and Medicare will “bankrupt” the federal government, then goes further downhill by reviving the call for private accounts within Social Security.

Diverting Social Security money to create private accounts would worsen rather than improve the solvency outlook and lead to larger benefit cuts and/or tax increases. This approach is hugely expensive and unnecessary. It would divert one-third of workers’ payroll taxes each year from paying promised benefits to funding private investment accounts. It also would remove Social Security income guarantees and add significant risk for America’s retirees while asking workers to take on more risk in the pension and savings areas. Social Security is the bedrock of financial security for today’s retirees: That role will not diminish in the future.

To compensate for loss of Social Security revenue to private accounts, Social Security benefits would have to be cut significantly, revenues increased dramatically or the federal government would have to borrow more.

Under a private accounts plan, other younger workers would be required to pay much of this debt. Future generations would pay twice, undermining the goal of intergenerational equity as part of any Social Security reform plan, a goal AARP strongly supports. Mr. Rahn acknowledged these transition costs, even to the point of suggesting sale of federal lands to cover part of the lost revenue.

Contrary to the author’s opinion, when looking at Social Security reforms, AARP carefully considers the effect not just on our current members but on our members’ children and grandchildren.

Because of our interests in working toward keeping Social Security strong for generations to come, AARP agrees the system needs reforms. For example, AARP supports better diversification of Social Security’s trust fund surplus so the system could earn higher returns while spreading the risks of investing. Among all workers ,we also suggest gradual increases in wages subject to the Social Security tax from today’s $94,200 to approximately $140,000, which would take zero additional dollars from 94.7 percent of the work force.

The above two steps alone would address well more than half of the projected shortfall and strengthen Social Security for the long run. Additional reforms would help further ensure the solvency of Social Security, and AARP will take part actively in identifying these solutions and working for consensus.

While Social Security is the bedrock of financial security in retirement for most Americans, AARP also wants people to have a variety of assets and/or investments for their retirement. That’s why we place so much emphasis on providing consumer information to help people plan for future needs, while supporting public policies that encourage people to save through private pensions, 401(k)s, individual retirement accounts and other investment vehicles. These private sector investments are the appropriate vehicles to take on more risk, without jeopardizing Social Security’s core role as the guaranteed foundation of income security.

Another pillar of financial security for older people — and yet the most unpredictable — is health-care coverage.

We believe most of the factors that contribute to rising costs of Medicare and Medicaid — including inflation of medical prices, growth in population and health care usage and prescription drug cost increases — drive up the cost of health care for everyone. Simply cutting federal spending on these important health insurance programs — without addressing the underlying costs of health care — merely shifts the cost burden to state governments, employers or individuals and increases the amount of unpaid health bills from doctors, hospitals and other providers. And the longer-term unintended negative health consequences of such cuts will continue growing. As with all health care, our first principal should be “do no harm.”

Meeting the challenge of adapting to an aging society, including keeping Social Security, Medicare and Medicaid strong and affordable, requires substantial change. Doing so entails addressing factors such as the fragmented and disorganized system of health care, and making prudent changes in Social Security — not tearing down the whole house just to fix a leaky sink.

DAVID SLOANE

AARP Government Affairs Director

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