Copyright 1999 The New York Times Company
The New
York Times
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November 14, 1999, Sunday, Late Edition -
Final
SECTION: Section 3; Page 4; Column
4; Money and Business/Financial Desk
LENGTH:
848 words
HEADLINE: ECONOMIC VIEW;
Baby Steps Toward Accord On Social Security
BYLINE:
By RICHARD W. STEVENSON
DATELINE:
WASHINGTON
BODY:
THE country
learned one main lesson this year from the inability of President Clinton and
Congress to make headway in dealing with the long-term financial shortfall in
Social Security: that making even modest changes to the retirement system
requires far more political trust than is present in Washington today.
Despite solemn promises from the White House and from Democrats and
Republicans in Congress not to use Social Security as a club to batter the
opposition, each side whacked away with abandon, contending that it alone could
be trusted to save retirees from financial ruin.
Lost in the partisan
spectacle, however, were some promising developments and even some enlightened
debate on various issues.
DEBT REDUCTION -- About the only big
fiscal agreement between the two parties was that the bulk of the projected
federal budget surplus -- the $2 trillion in excess revenue that Social Security
will generate over the next decade -- should go toward reducing the $3.6
trillion in national debt held by the public.
The agreement was largely
a result of a well-founded fear that using the Social Security surplus for
anything else, like tax cuts or government spending, would be painted as a
wholesale betrayal of Social Security.
That the outcome had beneficial
economic effects, like lower interest rates, was a happy byproduct of gridlock,
not the goal.
Still, using Social Security revenues to reduce the debt
does nothing to address the underlying long-term shortfall in the retirement
system's finances.
STOCK INVESTMENTS -- The most divisive issue
was whether individuals should have the right and the responsibility to invest a
portion of their tax dollars in private accounts. Nearly all Republicans and a
few influential Democrats said yes. The vast majority of Democrats said no.
But that divide obscured a somewhat remarkable agreement among almost
all voices in the debate. From the most liberal to the most conservative, they
concluded that the power of the stock market to generate substantial returns
over the long run should be used to help close the gap between the benefits that
Social Security has promised to today's workers and the system's ability to pay
them.
Mr. Clinton and Democrats in Congress said the Social Security
system itself, not individuals, should do the investing, so that everyone would
benefit or bear the risks equally. Advocates of private accounts said
individuals should have more control over their financial futures, and that
collective investment would result in de facto government ownership of private
industry.
One way or another, Wall Street seems destined to play a role
in dealing with the problem.
THE TRUST FUND -- Since its
establishment during the New Deal, Social Security has worked in the same way:
Today's workers pay a levy on their earnings; the revenue goes toward paying
current retirees. Any excess -- payroll tax revenue beyond what is immediately
needed to pay benefits -- is theoretically parked in a trust fund that can be
used down the road to pay benefits when needed.
Only in the last year
has it become clear to people other than policy types and actuaries that the
trust fund is basically an accounting fiction. Excess Social Security revenue is
not tucked away in the sense that the phrase "trust fund" suggests. Because of
the way the government keeps its books, that excess can be used in only three
ways: for general government spending, as was done each year until 1998; for a
tax cut; or to reduce the national debt, as is being done now.
No matter
how the excess is used, the government still deposits an i.o.u. in that amount
with the Social Security system. The i.o.u. is nothing more than a promise to
pay back the money, almost certainly out of general tax receipts or through
increased government borrowing. The i.o.u.'s are not real assets like stocks or
bonds, and they do not even represent cash, since the government cannot deposit
cash with itself as if it were a bank.
The trust fund now contains
i.o.u.'s totaling $865 billion. The amount is projected to peak at $4.5 trillion
in 2022, when the system will have to begin redeeming them to pay benefits to
retiring baby boomers.
In other words, if benefits are to be maintained
after 2022, the government will either have to dip into general revenue or
borrow from the public to make good on the $4.5 trillion. And even so, after the
i.o.u.'s run out sometime around 2034, Social Security will be able to pay only
75 percent of promised benefits unless changes are made.
GENERATIONAL EQUITY -- Finally, there was a dawning recognition that solving
Social Security's problems would require tradeoffs between the needs of today's
workers -- overwhelmingly the baby boomers, who are at a peak of political and
economic influence -- and later generations.
If the boomers cannot rally
themselves to find a consensus and make sacrifices and compromises now, the bill
will be dumped into the laps of their children and grandchildren.
And
who is to say that they'll be in any mood to pay it?
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