Is There Really A Crisis?

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Democrats have darker views of Bush's motives, saying it has been a long-standing Republican goal to dismantle the vestiges of the New Deal and the basic contract it struck between the government and its citizens. They also contend it is perfectly in keeping with everything they know about Bush that he would create the mirage of pending catastrophe to achieve that goal. "We have an Administration that falsely hypes almost every issue as a crisis," the liberal lion Edward M. Kennedy said in a speech last Wednesday, which happened to be the same day the Washington Post was reporting on its front page that the CIA had quietly given up its hunt for weapons of mass destruction in Iraq. "They did it on Iraq, and they are doing it now on Social Security." (As for voters, they don't seem to know what to make of the real situation: in the TIME poll, 45% agreed with Bush that the system faces a "crisis"; 44% said the claim was just a "scare tactic.")

And yet Bush is right about one big thing: Social Security does face a fiscal challenge--one that will be less painful to handle the sooner we tackle it. Though policymakers talk of Social Security as a trust fund (or, in the imagery that Al Gore and Saturday Night Live made famous, "a lock box"), it was enacted as an insurance program in which current workers pay for older generations. Today more than three-quarters of payroll taxes go to pay benefits. With baby boomers getting ready to retire in droves over the next few decades and life expectancies growing, the ratio of workers paying taxes to retirees collecting checks will drop dramatically. It was 8.6 workers for every retiree in 1955 and will drop to 2 workers for every retiree in 2040.

That projected shortfall is not a new situation, or even the worst that Social Security has faced. The system came within days of insolvency in the early 1980s. And there's always the option of fixing it the way policymakers did then, by raising taxes or tinkering with benefits by, for example, raising the retirement age. It's not a permanent solution, but it could add many decades to the life of the program.

What about Bush's proposed individual accounts? On their own, they do nothing to solve Social Security's funding problems. Even the White House admits as much. Personal retirement accounts, "for all their virtues, are insufficient to that task," Wehner wrote in his memo. There's also an inconvenient fact that Bush rarely mentions: if workers start investing payroll taxes in individual accounts, the government will need another source to cover benefits for retirees--as much as $2 trillion by some estimates. The options are grim: borrowing heavily, cutting benefits or both. While Bush has not spelled out how he would deal with what are known in bureaucratic jargon as the "transition costs," Wehner and others at the White House have signaled that he is leaning toward a significant reduction in future benefits that gets deeper over the decades. Some Republicans say that move alone could kill Bush's plan. "Any effort to change the benefit pattern just virtually guarantees you can't get anything done," Gingrich warns. "The Democrats and labor are putting together a massive campaign. If you give them a weapon that big, they're going to succeed."