Finance: How We Can Fix Social Security

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A quarter-century of writing and editing analyses of Social Security had convinced me that no one would cobble together even a jury-rigged fix for the system until five minutes before the first pension check bounced--if then. But now President Clinton really has put "saving Social Security" at the top of the nation's domestic agenda, sparking a debate unprecedented in its intensity. So maybe...

Then again, maybe not. A good deal of the debate is confused, ideologically envenomed, or both. Left and right squabble furiously over the latest idea--totally replacing Social Security with a system of individual investment accounts. Now, even this market-based approach is being shelved by its Republican proponents, who have become fearful of the political risks.

Some people think wishfully that rapid economic growth will enable the Social Security system to muddle through pretty much as is. Others talk in either-or terms--either funnel most future budget surpluses into Social Security and invest some of that money in the stock market, or increase Social Security taxes and modestly reduce benefits--and the problem will be solved.

Sorry, but it won't wash. The size of the gap between Social Security tax collections and pension payouts over the next 30 or so years, and how far any specific proposal would go toward closing that gap, are still anybody's guess. And those guesses depend on such variables as the speed of economic growth, the future pace of inflation and the course of the stock market--all notoriously difficult to predict even a year ahead. Estimates clash so sharply as to invite suspicion that they are shaped more by political bias than by analysis.

But it is possible to indicate orders of magnitude. Currently there are a bit more than three taxpaying workers supporting one retiree. By the 2030s, when the tidal wave of baby-boomer retirements crests, there will be only two. Somewhere around 2014, the system is expected to be paying out more in benefits than it collects in taxes, forcing Social Security to start cashing in the Treasury bonds in its trust fund, whose assets are now more than $760 billion. By 2034, that too will be gone, and taxes will cover only an estimated 71% of annual pensions.

One estimate is that under present tax and benefit schedules, the Social Security system would plunge $6.9 trillion into debt between 2014 and 2034. If that is accurate, Clinton's 1999 budget proposals, which are supposed to pump $2.7 trillion into Social Security during the next 15 years, would close less than half the initial gap. Further reforms would be needed to keep revenues in balance with payouts after 2034. Also, the present system contains some glaring inequities that ought to be corrected--at the cost of making the fiscal gap even wider. No one proposal will probably come near to filling it. What is needed, in my opinion, is a comprehensive program, summarized by these commands: