Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, November 1, 1994 TAG: 9411140027
SECTION: EDITORIAL PAGE: A-5 EDITION: METRO
SOURCE: HENRY J. AARON
DATELINE: LENGTH: Medium
Today's retired, disabled and survivors receive benefits financed largely from taxes currently collected from active workers. To be sure, the Social Security trust fund has significant reserves, currently $430 billion. But these reserves are only about 130 percent of the benefits paid out in one year.
That fact means that if paying Social Security taxes were voluntary and many workers stopped paying their payroll taxes, the Social Security system - and the American public - would face a terrible dilemma. The electorate could let Social Security funds run out and renege on benefits being paid to current beneficiaries and promised to workers soon to retire or who may become disabled.
This course would be a cruel betrayal of promises solemnly made to tens of millions of Americans. Such a betrayal is so outrageous that no one - at least, no one so far - has been willing to advocate it. North may be breaking new ground.
To avoid this betrayal, however, would require new taxes on today's active workers so that the proceeds from these new taxes could then be transferred to current Social Security beneficiaries. Thus, active workers would have the dubious opportunity to save for their own retirement - by voluntarily diverting funds they once paid as Social Security payroll taxes to some other type of saving - and to pay whatever new taxes are necessary to support current Social Security beneficiaries and those who will soon become eligible.
If benefits for current beneficiaries are sustained, today's workers would be forced to pay for two retirements - their own retirement through their ``voluntary'' savings and benefits for the currently retired and disabled through the new taxes. This is the only way to prevent the financial rug from being pulled from under today's beneficiaries.
This, then, is the program North favors. Renege on promises to people who are old and disabled and poorly positioned to make up the loss, or impose a double burden on today's workers by requiring them to pay for two retirements.
The attractiveness of Social Security is that each generation of workers signs an intergenerational treaty. It pays for the retirement of the generation that preceded it and, in turn, receives support from the generation that follows it. This treaty can undergo considerable strain when one generation is much larger than the ones that follow it. This problem will arise starting in about 2010 when the baby-boom generation begins to reach retirement age. Some modifications in Social Security are necessary to assure that burdens and benefits are fairly distributed.
But North is not talking about modifications when he talks about voluntary Social Security. He is talking about destroying the system. Social Security reflects a general recognition that most people do not save enough voluntarily to support themselves during retirement. Workers pay Social Security taxes early in life and collect benefits later on. Allowing them to pay taxes now only if they wish means that the system will lose revenue immediately and produce savings from reduced benefit obligations only later.
This simple fact produces the nasty dilemma that North ignores. His program will take away the basic income of millions of elderly and disabled Americans or it will impose large and needless burdens on active workers.
Henry Aaron is director of economic studies at The Brookings Institution in Washington, D.C.
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