capitol shavings

Social Security

by Edith Carper

Social Security may be the topic-du-jour for a long time to come. It is the lead article in the 14 February issue of Newsweek Magazine, which asks how much risk we are comfortable with. Newsweek poses several other questions: Is social security “a retro program” that needs only minor tinkering, or is it “an outmoded and actuarially unsound one that can be rescued only by an infusion of 21st-century market-based thinking? Searching for a higher yield, how much risk are Americans willing to tolerate in a program whose very name invokes the security of shared obligation? How much political risk is the president, or the Congress, willing to take in dealing with the grand-daddy of all entitlements?”

In a recent forum on social security — one participant made these statements about privatization:

1. The financial shortfall of social security, if it exists at all, is a relatively small problem.
   
2. Privatization would require heavy borrowing, not just in the next decade, but for many decades to come.
   
3. The rates of return privatizers assume on private accounts are inconsistent with Social Security Administration’s predictions of economic growth.

The economist-journalist Allan Sloan commented on the Bush plan in a recent article in the Washington Post, 8 February 2005:

"You can’t argue with Bush’s stated goals of making social security financially sound to allow Americans a secure retirement. But the centerpiece of his proposal — allowing workers the option to divert up to four percent of payroll taxes into private accounts — doesn’t do anything to fix social security’s financial woes. Instead, it’s a fiendishly clever device that serves the political goal of remaking the nation’s most popular social program so that it’s ‘a better’ deal for younger workers."

The Washington Post account went on to say: "Americans badly underestimate the share of the Federal budget spent on social security, and most incorrectly believe that retirees, on average, receive less in benefits than they contributed to the system. And about half of those who support the president’s plan incorrectly believe it would protect people from losing retirement money they invested from their personal account.

"Perhaps most significant, about seven in 10 Americans believe that the cost of living has been rising faster than wages over the past 20 years, although the reverse is true… The same percentage wants to peg social security benefits to the cost of living instead of the current formula, which pegs them to wage increases. That change would result in significantly lower guaranteed benefits for future generations, according to both supporters and opponents."

AARP has reached some “conclusions” about Bush’s plans. According to AARP, the public “is skeptical.”

AARP also concluded that the public remains skeptical. While many Americans say they like the idea of private accounts, poll after poll shows that the more they learn about the risks, the more their support erodes. AARP’s poll, of 1,500 adults age 30 and above, found that a majority of Americans (66 percent) favor keeping Social Security “as close to the present system as possible.” That figure rises to 79 percent among people 60 and older.

A recent poll by the Pew Research Center in Washington, D.C., found that 54 percent  of Americans favor the idea of private accounts, but only 29 percent think it more important to allow workers to have private accounts than to preserve Social Security’s guaranteed benefit.

Edith T. Carper is a special correspondent for IEEE-USA Today’s Engineer. She can be reached at todaysengineer@ieee.org. Views expressed in this article are the author's.