Chicago Tribune

September 4, 2001 Tuesday, NORTH SPORTS FINAL EDITION

SECTION: Editorial; Pg. 14; ZONE: N

The cost of doing nothing

Even before the federal budget surplus suddenly evaporated, Democrats and Republicans were tripping all over themselves with vows to "protect" the Social Security trust fund from the rapacious grasp of evil spenders in the other party.

If all that rhetoric puts them on the spot to enforce some spending discipline, great. But the real debate over the future of Social Security is likely to come, finally, this fall, when the commission President Bush named to fix the system reports its recommendations.

A preliminary report issued last month was brief but blunt: The system will stop meeting all its obligations by 2038. The report is just 30 pages, barely enough space to clear the throat for most government tomes. Yet, for all its brevity it has prompted enormous controversy.

That's because it suggests the commission, when it makes its final report, will propose a revolution: Americans should be allowed to invest a portion of their Social Security taxes.

That's right, Social Security should, in part, be privatized.

Some people object on principle to the notion of introducing private investment--gambling on the markets, if you will--into a system that for 66 years has provided limited, but rock solid, retirement security to generations of elderly Americans.

Fine. Propose an alternative. The preliminary report of the Social Security commission makes very clear that the alternatives won't be pretty.

The report illustrates the cost of doing nothing. And for all the noise generated by critics of privatization, their alternative solution is basically that.

The facts are these: The Baby Boom generation, 76 million strong, begins to retire in 2011. In 1960, five workers were paying into Social Security for each retiree. Today that ratio has dropped to 3.4 to 1. By 2050 it will be 2 to 1. The Social Security trust fund will stop running surpluses in 2016 and start to pay out more than it takes in through payroll taxes. Initially, those cash shortfalls will be relatively small and could possibly be financed through surpluses in the rest of the government's budget.

But by 2025, the deficit will grow to nearly $200 billion. By 2038, it will be well above $300 billion and all of the bonds in the Social Security trust fund will have been redeemed.

At that point, payroll tax revenues will cover only 72 percent of promised benefits. The options laid out by the commission are stark: Increase taxes, reduce benefits, cut other government spending or increase the public debt.

To maintain current benefit levels, the commission estimates that by 2030 a couple would be forced to pay 34 percent more in payroll taxes than they do today. By 2040, they would pay 37 percent more in taxes to keep retiree benefits at current levels.

Social Security is the one government program that touches every American--as taxpayer or recipient. It is gargantuan, and any changes in tax or benefit levels necessarily must be phased in over many years to allow people time to adjust and so those changes don't shock the economy.

That means it is time to reach a consensus about what changes will be needed to insure Social Security's solvency for future generations.

The commission's co-chairs, retired U.S. Sen. Daniel Patrick Moynihan and Richard D. Parsons, AOL Time Warner cochief operating officer, correctly point out that Social Security, "for our forbears was a transforming novelty" because it created a social safety net for the elderly that had never existed before.

That was at a time when there were plenty of young working people and relatively few old people. That equation--you'll appreciate this when you're 83 and have plenty of company--is changing because of higher life expectancies and lower birth rates.

But that means the equation that underpinned Social Security is disappearing.

The growing number of elderly in proportion to those still working is forcing the country to re-examine that paternalistic notion that the government will be able to take care of you when you're old and gray.

In a preface to the report, Moynihan and Parsons say that the system at present "does nothing to promote individual saving or investment. Workers have little sense of proprietorship or a sense of what they are entitled to. Many have lost confidence in ever receiving anything back."

They propose that this commission bring Social Security into the 21st Century, transform it from a passive to an "active instrument of personal financial security."

The commission's solution to Social Security's problems almost certainly will include some type of investment account, particularly for younger workers who have more time to build assets, that will be coupled with reduced guaranteed benefits.

There are a lot of unknowns: How will the accounts be structured and administered? What kinds of investment choices will people have? How do we pay the considerable costs of getting such a new system up and running while continuing to meet all those current obligations?

The danger, though, isn't that this commission will propose radical change. The danger is that people will concoct more excuses to ignore it.