Scripps Howard News Service

September 18, 2001, Tuesday

SECTION: BUSINESS

Four-point plan could rescue Social Security

SOURCE: Scripps Howard News Service

by A.J. COOK

Social Security has a major problem, and politicians have the wrong solution.

They think allowing workers to put some Social Security taxes into a stock market savings account will solve the problem.

It won't. Instead, it creates new ones: Funds will be needed for a person's retirement when the market is down or if the worker is a poor investor. Also, insurance will be needed for a worker's disability before retirement and for any young or disabled surviving children after a worker's untimely death. And a tax increase will be needed to pay these added costs - which Social Security now pays.

Here is a four-point plan to save Social Security permanently:

- Begin complete reporting of the Social Security Trust Fund:

The Social Security Trust Fund - the account workers pay into - is insolvent. The liability for benefits promised far exceeds the assets it should now have.

More than 60 years ago the system got out of whack. The original Social Security law, passed in 1935, provided for the liability with a reserve. But within a few years the legislators wiped out the reserve.

Seeing a short-term political opportunity, they raided the reserve fund by increasing workers' benefits. This started today's pay-as-you-go system. Responsible management would have maintained a reserve account so they would be forewarned of any future shortage.

The present excess liability, which some say is twice the national debt, is nowhere recognized in official Social Security Trust Fund reports. But commercial reports for funds like this are required to show the debt. Social Security should also.

- Move toward solvency:

It isn't critical that the fund become solvent immediately. The key is to reverse the trend toward insolvency. Do this by adopting the other three points. If necessary, in the interim, borrow money to make benefit payments.

- The government should pay higher interest rates:

The government is getting a cheap ride off the Social Security system. With a debt of $1 trillion to the fund, the government pays annual interest on average of only 2 percent. Whereas, on long-term debt owed the public, it pays 3.4 percent. There is no basis to pay the fund less; it should pay 3.4 percent or more. And the government should also pay the past interest underpayment.

- Delay the start of retirement age once again:

People live longer now, so they receive Social Security longer. The fund can't continue to pay this retirement period that becomes longer and longer. Consequently, the retirement age should automatically increase as life expectancy increases. Without this, no amount of financial magic will save Social Security permanently. This change is essential tostop the financial hemorrhaging.

Politicians say invest some of your Social Security taxes in stock, and they tell you the grand things that could happen.

But many workers need insurance protection like Social Security; they can't afford to gamble on what could happen.

(A.J. Cook, lawyer and accountant, is counsel with the Memphis law firm of Pietrangelo and Cook.)