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Social Security Cooling
By Bernard Wasow, The Century Foundation
June 26, 2007
How times change.
In 2000, Al Gore was warned to stay away from the then-wonky topic of global warming. Seven years ago, any comment on Social Security would likely provide a tasty sound bite. Today, global warming is hot, while Social Security has been frozen out of the campaign debate.
The increase in public concern over climate change makes sense: scary forecasts about droughts, killer storms, and dead polar bears seem to be coming true every day.
The loss of interest in Social Security is not so easy to justify. What is more, at a time when there are few comprehensive, feasible fixes for climate change, there are a lot of concrete proposals out there for Social Security reform, proposals that political candidates ought to be talking about.
If we want to elect a president in 2008 who not only holds the high moral ground, but has specific fixes for specific problems, we ought to be paying a lot more attention to Social Security.
To begin with, we ought to be asking the candidates what they think is the source of the problem. This question should sort the ideologues from the practical thinkers. Any candidate who says “government is the problem and privatization is the solution” should be asked for specifics. Social Security is one program where the costs are very low in spite of nearly universal coverage. Privatization of Social Security does not cut fat or offer any other costless remedy. It just shifts risks—financial market risk, inflation risk, program management risk—from the public sector to the family. Proposals for individual accounts typically conceal a program to save money simply by reducing guaranteed retirement benefits. “Privatization” without details is a slogan rather than a program to balance the books.
Candidates who get to the heart of the problem will point to basic demographic changes in our society: family size has fallen even as life expectancy has grown. As the number of retirees per worker grows, we need to find the resources to support the elderly. Everyone should recognize the basic fact that retirees will need a bigger share of the pie in the future than today simply because they will be a bigger share of the population.
Once the problem is clear, candidates have basically two questions to answer. First, must we begin strengthening Social Security soon, building larger current surpluses and expanding the trust funds, or should we wait and introduce reforms closer to the time the trust funds are likely to run out (some time after 2040)? Second, what should be the mix between finding more revenues and reducing pension benefits?
As with every budgetary question, we cannot let candidates get away with saying “we need to cut waste,” or “we will get the revenues we need from economic growth.” Again, there is little or no waste to cut in Social Security; and the forecasts already include revenues derived from economic growth. Where should we cut spending and whom should we tax more, to get the money the government needs to spend?
Broad fiscal questions about tax levels and the range of public programs are closely tied to the narrower question of Social Security promises. After all, the Treasury bonds in the Social Security trust funds are the siblings of the all the rest of the Treasury bonds the federal government has been pumping out over the years to finance tax cuts and military initiatives. IOUs owed to tomorrow’s retirees are hardly less binding than IOUs owed to the central bank of China or the government of a petroleum exporter. All of our federal government’s financial promises must be met and will be met. Each candidate should tell us exactly how to stop the flow of red ink and put us in a position to keep the federal government’s promises.
The Social Security challenge also is closely tied to the raging immigration debate. How would “immigration hawks” deal with the drop in the future workforce and future economic growth that would follow a crackdown on immigrants? Immigration can provide a substantial part of the growth in the future workforce that will help support future retirees. What revenues would presidential candidates substitute for the payroll taxes foregone when we build a wall against immigrants?
Unlike climate change, for which both the dimensions of the problem and the shape of solutions carry huge uncertainties, Social Security's financial outlook has been closely studied and expert opinion about the facts is fairly narrow. As the baby boom generation approaches retirement, millions of aging Americans worry about the security and size of their retirement benefits. Younger Americans worry that they will be unable to pay for their parents’ retirement and that there will be no Social Security for them when they retire.
Strengthening Social Security demands the clichéd tough political choices. The challenge is as real in 2007 as it was in 2000. Isn’t this exactly the sort of issue that American voters need to test candidates with, as they determine who will become the next
president.
Bernard Wasow is a Senior Fellow at The Century Foundation.
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