THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saturday, August 10, 1996 TAG: 9608100012
SECTION: FRONT PAGE: A12 EDITION: FINAL
TYPE: Editorial
LENGTH: 53 lines
As concern has increased about the long-term viability of Social Security, proposed solutions have become more daring. It's reasonable to seek reform, but this program is too important to permit trial-and-error tinkering.
The problem is largely demographic. Americans are living longer. We draw Social Security checks longer. The baby-boom generation is so large that as it enters retirement, the workers forced to foot the bill will be taxed at an insupportable level - if nothing changes.
Luckily, much can be done. Automatic cost-of-living adjustments need to be scaled back. A later retirement age is already being phased in. Means-testing is inevitable. It's senseless to provide the same support to the indigent and to the independently wealthy. The program was supposed to be a safety net for all, not a trampoline for the prosperous.
The fix most urgently needed is to place Social Security surpluses off-limits from a spendthrift Congress. Michael Tanner of the libertarian Cato Institute reminds us that the Social Security trust fund ``is really little more than a polite fiction. For years the federal government has used the trust fund to disguise the actual size of the federal budget deficit, borrowing money from the trust fund to pay current operating expenses and replacing the money with government bonds - essentially IOUs.''
A recent Cato poll suggests that two-thirds of American voters favor some form of privatization, but turning the Social Security program into millions of individually managed investment accounts would entail risks.
Under one scenario, some contributions to the system could be invested in the stock market rather than government securities. Hypothetically, a higher-level of return would result, increasing the system's solvency and enhancing retirement incomes. Chile has experimented with such a system.
But individuals would have to manage their own investments if personal retirement accounts were the norm. The government couldn't be in the business of choosing IBM stock over Apple. And if individuals chose badly, wouldn't they still require government assistance? Could the country really abandon its retirees just because they had proved to be incompetent stock pickers? Probably not.
There's also the problem of a transition from the present system to a hybrid permitting some self-directed investment. Present contributions to the system are needed to pay for present retirees. The system is largely pay-as-you-go. Only the surplus after all current claims are paid could be invested. That would be insufficient to fund retirement.
Social Security is a social contract across generations that can be bent but mustn't be broken. Exploring alternatives is a useful exercise, but the first order of business should be addressing obvious flaws in the present structure. And any reform must preserve the one essential element: full participation. If opting out is permitted, the system will cease to exist - stranding millions. by CNB