The Future of Social Security


By: Annelena Lobb
The Social Security Network, November 1, 2001


President Bush's campaign goal to save Social Security by creating private investing accounts may be on hold - indefinitely - as the nation shifts its focus to fighting terrorism and an economic recession.

A commission appointed by President Bush is developing a plan to allow people to invest a portion of their money in stocks. Without reform, Social Security is projected to begin running deficits in 2016.

But after Sept. 11, Washington lawmakers pledged $15 billion to help airlines, $20 billion to aid New York City and another $1.5 billion to fight bioterrorism. The list of upcoming defense and security expenses looms large, and it's questionable whether government funds for the transition to privatization will be available anytime soon, analysts said.

It's also unlikely that Congress will devote the time needed to pass a Social Security bill in the near future. After the Sept. 11 hijackings and the recent spate of anthrax attacks, Social Security reform is low on the Congressional to-do list.

"Other issues are sweeping Congress," said Ira Siegler, a expert on Social Security and a principal at the Unifi Network, the retirement consulting arm of Pricewaterhouse Coopers in Teaneck, N.J. "There are bigger priorities right now. I don't think Social Security reform will be on anyone's front burner for quite some time."

The nation's expenses following the Sept. 11 attacks prompted worries about the fate of the Social Security surplus.

Even before the terrorist attacks, the Congressional Budget Office said it would have to dip into the Social Security surplus to meet costs. The surplus is the excess money raised from Social Security payroll taxes every year.

As of August, the Social Security surplus was about $156 billion, according to a report by the Office of Management and Budget. Social Security experts said it's likely all of this year's surplus will go towards defense spending and other costs rather than the price tag to privatize.  

"The major impact of Sept. 11 on privatization is the disappearance of the Social Security surplus," said Marshall Wittman, a political analyst at the Hudson Institute, a think tank in Washington, DC. "Before the attacks, it was questionable whether we had enough money available to pay for the transition to privatization. This makes the issue even more difficult."

Cost of Individual Accounts

While estimates vary on the cost to privatize, it could cost trillions of dollars, experts said. The price might be $1 trillion a year for 10 years, according to one analysis by the Cato Institute's Project on Social Security Reform in Washington, D.C. 

Some Social Security pros argue that spending the surplus on other costs will have no bearing on reform.

"The Social Security surplus is always being spent," said Michael Tanner, co-director of Cato's Project on Social Security Privatization. "Now it's going to defense and rebuilding rather than paying down debt. From a psychological standpoint, spending it may even be good for privatization. Opponents might use that surplus as a hedge, saying we've got money in a lock-box and don't need to privatize."

Some analysts think next year's Congressional elections already pushed reform to the 2003 agenda. "I don't actually think Sept. 11 will have any long-term impact on the Social Security debate," Tanner said. "2002 is an election year, so I always thought Congress would take up the issue in 2003."

Others believe the 2002 -- and even 2004 -- elections will determine whether privatization will happen at all. "If the President and Congress are both Republican in 2002, then action favorable to the President will ensue," said Henry Aaron, a political analyst at the Brookings Institution, a think tank in Washington, DC.

Said Wittman, of the Hudson Institute, "Privatization is at best in hibernation, and at worst awaiting a second Bush term, if there is one. But it's just not going to happen during 2002, which is an election year, and while we may be recovering from a recession, or still in one."

Where things stand

The commission has decided to issue its recommendations by the original deadline of Dec. 20. Many had predicted a delay, because the commission canceled its Sept. 18 meeting, following the terrorist attacks, and because its co-chair, former Senator Daniel Patrick Moynihan (D-N.Y.), had suggested postponing publication of the final report until next spring.

Randy Clerihue, the commission's press officer, said the commission had set two final meetings, for Nov. 29 and Dec. 11.

"Since all of their policy decisions must be made in public, much of the shape of their final recommendations will become clear at the November and December meetings," Clerihue added.

For now, though, public attention to Social Security reform has all but evaporated. "Social Security reform was not an issue that people were in the middle on before Sept. 11," said Unifi Network's Siegler. "Right now, they just don't care. I think that's where we'll be for at least another year.


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