Where I Stand — Mike O’Callaghan: Debating Social Security

Thursday, March 14, 2002 | 8:30 a.m.

AMERICANS should be pleased that President George W. Bush has again pushed to allow stock investments for a portion of the Social Security payroll taxes. I say this not because it is acceptable but because now is the time to debate the issue during an election year. Nothing will be solved in 2002, but it sure should be off the table or very much alive in 2004.

Remember, it was an issue in 1996 during the White House election battles. That's when economist Dean Baker said the privatization aspects of the plan had some elements of a "shell game." The Christian Science Monitor reported that "Mr. Baker, an economist at the Economic Policy Institute, a liberal think tank in Washington, sees privatization as 'faddish, ill-considered,' and 'perhaps the most serious threat to date' to the Social Security system. 'It would place individuals' retirement savings at considerable risk, force the creation of huge government bureaucracies, and leech Social Security assets out of the system and into the coffers of brokerages and banks,' he says."

Monitor reporter David Francis also wrote that one popular privatization plan would "create individual retirement accounts managed by each individual. Almost half of the 12.4 percent payroll tax would be diverted into these accounts.

"If history is repeated, advocates note, these accounts could grow handsomely. Since 1926, stocks have gained an average of 7.2 percent a year, adjusted for inflation, compared with 2.36 percent for corporate bonds and 1.81 percent for long-term government bonds."

So what has changed since these arguments were made six years ago? Well, we do know that in about 36 years our present system could be bankrupt. However, this date could be moved closer and more rapidly if large numbers of workers directed their taxes into the stock market. Today's workers are in reality funding those retirees now receiving Social Security payments. What happens when even less money goes into that pot? It doesn't take a genius to answer that question.

Paul Krugman, writing in the New York Times, explains the problem as being more complex than many people want to accept. Krugman writes, "The point is that when touting its plan to privatize Social Security, the Bush administration conveniently fails to mention the system's existing obligations, the debt it owes to older Americans. As with so many other administration proposals, private accounts are being sold with deceptive advertising.

"The truth -- which Mr. Bush's economists understand perfectly well -- is that Social Security has never been run like a simple pension fund. It's really a social contract: each generation pays taxes that support the previous generation's retirement, and expects to receive the same treatment from the next generation." Krugman went on to say, "Social Security exists, and older Americans have upheld their end of the bargain. In particular, baby boomers have spent their working years paying quite high payroll taxes, which were used mainly to support their elders, and only secondarily to help Social Security build up a financial reserve. And they expect to be supported in their turn."

There is little doubt that some change must be made in our Social Security system. There are several reasons to question the wisdom of entering the stock market at this time. Four years ago I wrote that it would be a major debate issue in 2000 but all that resulted was quick references to putting the funds in a "lock box." That is really no better answer than the risks in the stock market.

So let the debate for 2004 begin now that the president has again proposed investments in the stock market. I'm ready to be convinced, but right now he has to have something better to offer than has been talked about in recent weeks. Will we get real changes in the system that are fair unless the president and all members of Congress lose their plush retirement plans and must rely on Social Security in their old age? Probably not. Don't hold your breath waiting for them to get down to our level on the Social Security chain.