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The Honolulu Advertiser
Posted on: Sunday, March 27, 2005

ISLAND VOICES

Sorting out truth on Social Security

By Ed Case

President Bush said in his 2005 State of the Union speech that Social Security is "headed for bankruptcy," and that we must "join together to strengthen and save" it.

Since then, Social Security has been foremost on the new 109th Congress's agenda, with one side claiming a crisis demanding radical surgery and the other that nothing's really wrong. There is little objective analysis in this inflamed partisan rhetoric, and to me neither side has it right.

I also know from my own constituents, at our 20 Talk Story district-wide community meetings thus far this year and otherwise, that Americans want more information. What exactly is Social Security, what has it accomplished, how does it work, where is it going, what are its challenges, who proposes what?

Social Security, enacted in 1935 and supplemented in 1939 and 1956, provides benefits to retired and disabled workers and their families, and to the survivors of disabled workers. Those groups suffered high rates of poverty, destitution and death in pre-Social Security America. Today, 47 million Americans (including 190,000 in Hawai'i) receive these benefits. For 65 percent, Social Security is 50 percent or more of total income; for 20 percent (especially widows), it is their sole income. While nobody lives comfortably on benefits alone, Social Security has unquestionably fulfilled its purpose and rightly identified itself as a cornerstone of our social contract.

Social Security is a "pay-as-you-go" system: 96 percent of all working Americans (including, contrary to persistent misinformation, members of Congress), pay a portion of our wages in return for benefits at eligibility (62 for partial benefits; 65 to 67 for full benefits, depending on birth date). This works fine when more money's coming in than going out, like today, with 153 million workers paying in for 47 million beneficiaries, generating a $175 billion annual surplus.

But here's the problem: There's no question that, left alone, this will flip. In other words, more will be paid out than is coming in, for several reasons. First, there's the impending retirement of baby boomers, resulting in fewer workers for every beneficiary (from today's 3:1 ratio to an estimated 2:1 in a few decades). And beneficiaries are living longer. The best estimate of when expenses will surpass income is around 2018.

That's not good news. But it wouldn't be so bad if we saved that surplus from 1935 through 2018 to cover the shortfall post-2018. But we haven't. We've loaned it (at interest) to the rest of our government for non-Social Security purposes. (So our current record budget deficit of a projected $368 billion would actually be $175 billion higher if the surplus were "lockboxed"; I've co-introduced legislation to segregate Social Security revenues for budget calculations.) Yet even if all that loaned surplus/interest were paid back to Social Security to cover the post-2018 shortfall, it would still be exhausted sometime between 2040 and 2050, at which point benefits would have to be severely curtailed.

So here's the reality: (1) Social Security has served us well and should be preserved; (2) on its present path it is unsustainable; (3) it is not, however, in immediate crisis; but (4) true preservation and sustainability will require tough choices.

The president, in my view, is thus correct to highlight our challenges, but what exactly does his administration propose? Thus far, in truth, nothing concrete. It's been puzzling that three months into this Congress, we still don't have a specific proposal. But what he has talked generally about is "privatization": that part of our contributions would instead be available for individual investment.

In concept, it doesn't sound unlike other proposals I've supported, like medical savings accounts, but the devil's very much in the details. For example, what would in fact happen to those who blew their investments — would we truly abandon them? But most critical for me: The proposal would require us to increase our national debt by $2 trillion to $6 trillion. That I won't do. And even the administration admits that privatization alone will not make Social Security solvent; it is the deep benefit cuts hidden in its proposals that allow it to make that claim.

So if not this, then what? There's no other way to "strengthen and save" Social Security over the long term than to face the tough music of altering the current revenue-expense balance through politically unpopular changes, such as charging wages over the present $90,000 cap, phasing in another retirement age extension, allocating benefits based on need, changing the benefit-adjustment formula and other measures. We have some time to work through these realities and to make fair and reasoned decisions that do not destroy Social Security under the guise of fixing it. Denial and inaction — effectively booting the ball down to the next generation — is not acceptable.

U.S. Rep. Ed Case, D-Hawai'i, wrote this commentary for The Advertiser.