2005-04-22 / Columnists

From the Editor’s Desk

By Howard Schwach


Perhaps it’s the fact that I just passed the 65 years and four months milestone that allows me to collect social security, but I find myself much more interested in what President Bush wants to do to that safety net these days.

I know that whatever happens, it will probably not impact me in any way. Those who are lucky enough (did I say that) to get benefits presently will probably not face any cuts under any of the plans that have been floated, but I have two children in their 30’s and two grandchildren less than seven years of age, so the issue has some resonance.

Although I do believe that social security is in trouble and that it will be more so by 2042 (my kids will be their 60’s and I will be long gone by then), I do not believe that it is in the kind of terminal crisis that Bush often speaks about when he seeks support for his plan to turn the system over to his rich broker friends and to make a mockery of everything President Franklin D. Roosevelt wanted for the system when he originally pushed it through Congress.

I don’t trust the politicians to serve the people very well, but I don’t trust the American Association of Retired Persons (AARP), the major lobby for seniors citizens very much either. Not after the way they caved in on the prescription drug program last year.

Those disclaimers on the record, here’s what I think can be done on the next 36 years to “save” social security for my children and grandchildren. I think it’s worth saving as is, because it has been one of the fairest programs administered by the government since its inception, and most people would like that fairness to continue when they grow old.

Some of the suggestions below are better than others. Some will never see the light of day for political reasons. Others, because they anger those in power. Still others, because they will not work.

In any case, for better or for worse, some ways to fix the system so that it does not implode in 36 or 37 years.

Raise The Cap On Those Earnings Subject to Social Security Taxes. Or, do away with it completely.

Right now, a worker pays social security taxes on all earnings under $90,000. That puts the burden on middle class wage-earners to supply funds to the social security system. Changing the cap to reflect the realities of today’s (and future) salaries or doing away with it entirely would reportedly cut the deficit by 32 percent. And, it would impact less than 10 percent of American taxpayers, those who earn more than $100 thousand each year.

Increase The Payroll Tax Rate.

To my mind, this is slightly less of an alternative than doing away with the cap, but if you raised the rate for all taxpayers from the present 12 percent to 15 percent over the next 36 years, the increased revenue would completely pay any deficits the program faces. Of course, increasing the payroll tax rate would impact lower income taxpayers disproportionately because the increased taxes would mean more to them than to the millionaires, and Bush has already said that he would not go for this option under any conditions.

Deny Benefits To Those Who Do Not Need Them.

Of course, the government would first have to decide who does not need the benefits. There is a joke going around Washington, D.C. that was reported in the AARP Bulletin recently: “My mom says her social security checks just covers the payments for her Jag.” The trick here is not to penalize success by denying the wealthy their social security benefits, but to come up with a fair tax on the benefits so that the richest beneficiaries would make a greater contribution to the system than they do under present conditions.

Make Social Security Universal So That all Americans Pay Into The System And Benefit From It As Well.

About a third of all government employees – mostly state and local – are not now covered by social security. If all new hires were brought into the system, it would increase the revenues and the payout, but it would be much fairer than allowing some Americans to opt out of a system that is supposed to be a safety net for all. Would state and local governments be happy paying the required payroll taxes? Probably not.

Invest Some Of The Present Social Security Trust Fund In Indexed Funds.

By law, funds from the Social Security Trust Fund can only be invested in government bonds, which are safe but have a very low yield. There are other securities, such as indexed funds, that have the same relative safety but provide a significantly higher yield. In addition, the fund could better ride out swings in the market than individuals who have to retire at a certain point in their lives.

If even fifteen percent of the trust fund could be put into indexed funds, the increased revenue could make up nearly half of the shortfall by 2042.

Adjust the COLA.

This suggestion might be the most divisive and most difficult to implement politically. The Cost Of Living Adjustment (COLA) increases benefits to keep up with inflationary forces. The COLA is based on the Consumer Price Index (CPI). Many economists, and not only Republican economists, believe that the CPI overstates inflation. The Federal Reserve has developed a new CPI that it thinks is more realistic and wants to adopt it. Some groups that represent seniors are fighting the change because it means lower yearly COLA’s.

Raise The Retirement Age.

The normal retirement age, which was once a flat 65 years of age, has been rising slowly each year to 67 in 2027 (for workers who were born in 1960). I was born in 1939, and my retirement age was 65 and four months, for example. Workers can still retire at age 62, but at reduced benefits. There are some who think that, in today’s market and with today’s health care advances, that 70 would not be too young for retirement. Raising the retirement age to 70, experts say, would cut about a third of the deficit right off the bat.

You’ll notice that there are two things I did not discuss in this column – Bush’s privatization plan, which seems to me to be a boon to the rich and those

who work in the stock market; and indexing the benefits to price rather than to wages, which seems to me to be a poor way to do it. Perhaps I do not fully understand the ramifications of that change, but I am probably in good company. Nobody else seems to understand it fully either.

In any case, something has to be done, even though it doesn’t have to be done now. Clearly, to my mind, the fix is not in throwing out the baby with the bath water, but in tweaking the system in any number of ways to make the dificit go away.

That any change will pain somebody is a given. A change that will put everything in peril is not,

It is clear to me that there are so many options that privatization is not only not necessary, but it could well be destructive to middle class retirees at the same time that it is a boon to rich Wall Street workers. Perhaps, that is the idea in the first place.

We have time to worry about the collapse of the fund, but not to start to think of a rational fix.

That time has come.

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