Social security blanket

If we're going to have a public debate about reforming Social Security, let's get a few things straight:

First of all, Bush and others have said that Social Security will be bankrupt by 2040 and that taxes will have to be raised or benefits reduced by 2018. Neither is true. In 2018, the money that Social Security pays out will exceed the money that it takes in. But Social Security's trust fund has been building a surplus of more than $3 trillion since the '80s. The fund will be able to pay all of its benefits until 2041 by most estimates and it can continue to pay most of its benefits long after that. So it's not exactly a crisis, as some would have you believe. (But calling something a crisis is a good way to induce fear and get support for your plan. See War in Iraq. Speaking of misdirection, if you want a REAL crisis, look at Medicare. Its trust fund will be gone by 2019.)

But that doesn't mean that Social Security doesn't need to be reformed -- and better to start thinking about it now than to keep putting it off as is likely to happen. But are the private accounts that Bush touts the answer? Well, if you're looking to shore up Social Security, no. Having people put money into private accounts doesn't do anything to help Social Security financially and actually hurts it. As people put money into private accounts, that's less money that will go into Social Security, exacerbating the problem. The costs of a transition into private accounts are estimated to be up to $2 trillion. (As if it weren't running enough deficits already.) Funny, no one's really talking about that, though.

Bush and his supporters are right that, over the long run, you would get a better return out of private accounts than you would Social Security. The problem comes when you retire and start drawing on that money. At that point, you're no longer dealing with the long term, you're dealing with the short term. So if there happens to be a dip in the economy when you retire, you're going to get less money than you expected. And while the market will eventually even itself out, that doesn't help you at that point in time.

So what's a government to do? Sen. Lindsey Graham, a Republican from South Carolina, has a proposal that both sides have criticized, which means he's probably doing something right. It involves phasing in voluntary private accounts (which Democrats don't like), the transition costs for which would be paid for by raising the cap on the Social Security payroll tax to $200,000 (which Republicans don't like because it's a tax increase and one that hits the wealthy). (Right now, only the first $90,000 of your income is taxed for Social Security.) The voluntary private accounts would involve government-approved funds to keep the investing fairly risk-free. And benefits would be changed to reflect price changes, rather than wage rates. (This would decrease benefits somewhat but would still keep them in line with what you would be spending the money on.)

This isn't in Graham's plan, but I think gradually and carefully raising the retirement age to 70 needs to be strongly considered. (It was last changed in 1983 to gradually rise to 67.) People are living longer and the retirement age needs to reflect that.

Finally, the government needs to figure out a way to encourage people to save independently of Social Security. Right now, 33 percent of retirees depend on Social Security for 90 percent to 100 percent of their income. Two-thirds of retirees use it as more than half of their income. It was never intended to be the sole source of income for retirees, simply a safety net and a supplement.

So that's my spiel on Social Security. If you made it all the way through, I congratulate you.