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Article published Dec 23, 2004
Social Security: Comprehensive debate on a real problem needs to begin
now
Social Security reform is a complex set of problems that
won't be easily solved, but federal lawmakers should join President Bush in
making it a priority.Bush announced last week that fixing the Social Security
system would be a main goal of his second term. He wants Congress to begin the
effort next year.The main problem with the Social Security system is that it
will soon have too few workers paying into the system and too many retirees
taking benefits out. In the 1950s, there were 16 workers for every retiree.
Today, that ratio is three to one. Within 15 years, it will be two to one.The
system will be spending more money than it takes in within 13 years. After that,
the financial problems just get worse.Congress and the White House need to
address the coming Social Security shortfall, and they need to reform the system
so that this problem doesn't keep getting worse.Unfortunately, those goals
aren't compatible.The best option for long-term reform would be to allow workers
to contribute some of their payroll tax into personal accounts. The workers
would own these accounts and could control the way they are invested.Personal
accounts would be able to earn a much higher return on investment than Social
Security and would give workers ownership and control of their money. And, in
the long term, they would leave the system in much better financial shape.The
problem is that in the immediate future, they would take money out of the Social
Security pipeline, adding to the expected shortfall.The overall problem is to
reform Social Security to solve the long-term fiscal problems while meeting the
more immediate shortfall.Sen. Lindsey Graham, R-S.C., has proposed a solution
worthy of consideration. He would minimize the impact of reforms on the budget
or the need to borrow by eliminating a host of special tax loopholes for
specific industries and by raising the cap on taxable Social Security
income.Both may be politically difficult to pull off. But the second may be
achievable. Under current law, only the first $87,900 in a worker's salary is
subject to Social Security taxes. Raising that cap could generate significant
revenue for the system.Making Social Security benefits subject to taxation also
could help. Poor retired people who live on their Social Security benefits don't
make enough money to have to pay anything despite such taxation. But wealthier
recipients who have other sources of income would.All of these proposals should
receive a full evaluation in Congress. The longer we wait to address these
problems, the more difficult it will be.