Former New York Senator Danial Patrick Moynihan once observed, “you are entitled to your own opinion, but you are not entitled to your own facts.” As the Democratic co-chair of President Bush’s bipartisan Social Security Commission (on which I also served), Moyhihan challenged us to start with the facts before we proceeded to any conclusions. Good advice. And the facts about Social Security’s future are not hard to find. Reputable organizations — such as the bipartisan Congressional Budget Office and the Social Security Trustees (most of whom were appointed by President Clinton, not President Bush) — have regularly issued reports that point to a fiscal crisis in Social Security as the baby boom generation begins to retire.
Now another respected government agency — the General Accounting Office (GAO) — has released a report with similar findings. According to the GAO, given the cost pressures created by the baby boom generation and other factors, annual payroll-tax revenues will not fully cover benefits beyond the year 2018. And, if no new revenue is injected into the system, recipeints could see benefit cuts of nearly one-third by the year 2039.
On the other hand, if, as in the past, the solution is found primarily through payroll-tax increases, the tax burden could climb fifty percent — from the current 12.4 percent of income to nearly 20 percent. The head of GAO, David Walker, advised members of Congress that “action taken today can ease … the pain of future actions.” In other words, he was telling Congress “do not delay.”
Clearly, taking action sooner than later was President Bush’s goal when he appointed our bipartisan commission two years ago. But, understandably, the September 11 tragedy required concerted action by the president and Congress both domestically and internationally.
Accordingly, Social Security reform was taken from the frontburner and left to simmer on the backburner. Now, the new GAO study reminds us that in a scant few years the Social Security problem will boil over.
Central to Social Security’s financial stress is this simple fact: By the year 2030 (when the baby boom generation is fully retired) there will be only two workers for every retiree. Faced with similar circumstances, many other industrialized nations have taken steps to reform their government retirement policies.
For example, in Great Britain and Australia, a pay-as-you-go Social Security system has been replaced with one that allows for workers to invest part of their payroll taxes in the stock and bond markets through personal individual accounts that they own directly, just like their own bank accounts. A basic safety net is retained, but workers in these nations now have the opportunity to create a retirement nest egg for themselves beyond the safety net.
The United States would do well to enact similar reforms. Polling data shows that most Americans support personal investment accounts as part of Social Security, with overwhelming support coming from younger voters. Young Americans are already fearful that our current system is promising more than it can deliver.
They understand that Social Security in its present form cannot offer them the same security that it has provided for their grandparents. They are rightly concerned that they will be forced to pay more into the system, while getting less back.
In fact, one poll of voters under thirty discovered that a greater number of young people believed in UFOs than in the likelihood that Social Security would be there for them. By large margins, these same young voters are strongly in favor of the option of investing a portion of their payroll taxes in a mutual fund. In short, they want some sense of control over their financial future.
Can we honor our commitment to those currently retired or soon to retire while moving toward a system that helps workers establish personal savings accounts? Of course we can and every credible plan for reforming Social Security assures that those at or near retirement will be held harmless to any benefit changes.
In particular, President Bush’s bipartsian commission suggested three alternatives that achieve this objective at less cost than maintaining the status quo. Such personal accounts, designed along the lines of the Thrift Savings Plan for federal workers, would provide younger workers the opportunity to create wealth for themselves, and enjoy a better retirement in their future.
— Tim Penny is a former Democratic member of Congress from Minnesota (1982-94) and currently serves as a senior fellow at the University of Minnesota Humphrey Institute.