Both sides right, wrong on SS (2/11/05)

Like most Americans, we’ve been struggling over the past several weeks to get our arms around the question of revamping Social Security.

It hasn’t been easy.

Politicians, economists, and pundits have been pulling us in so many different directions the entire country is getting a little dizzy.

Social Security will run out of funds in 2018. No, make that 2070.

Social Security is in a state of crisis. No, it’s not in a state of crisis and in fact is healthier than the rest of American government finances.

When the time comes that revenues from payroll taxes are outstripped by promised benefits, the Social Security trust fund can be tapped.

No, that money won’t be there because the government has been quietly tapping the trust fund for years.

You get the picture. It’s one of contradiction, confusion, and way too much shouting.

In that climate, we’ve encountered one or two voices who make quiet good sense.

One is a fellow named Edward Gramlich, a governor of the U.S. Federal Reserve and a guy who chaired a Social Security advisory commission about ten years ago.

Interviewed last month by The Wall Street Journal, Gramlich struck a middle course that probably infuriated partisans on both sides.

He supports the idea of reforming Social Security, and he backs the idea of private accounts for individuals. On those points, the Bush administration would smile.

But he also makes it clear that the president’s proposal to divert money from payroll taxes to fund those personal accounts would be a huge mistake.

There’s nothing to be gained — and an enormous amount to be potentially lost — by borrowing money now to invest for the future.

It’s the government equivalent of maxing out your Visa card so you can play the stock market.

In other words, it’s incredibly foolish.

Instead, Gramlich argues, what’s needed is a provision for individual accounts as an add-on to the existing Social Security system. That way, the safety net for retirees and the disabled is protected but Americans would start saving more for their own future.

Adding individual accounts — without diverting money from Social Security payroll taxes — could be done either through a government mandate or through incentives.

At the same time, it will probably be necessary to raise the retirement age to provide a more realistic reflection of lifespans in the 21st century.

It’s a tough prescription, but it’s a tough problem.

And it’s not going to be solved by — on the one hand — pretending it doesn’t exist or — on the other hand — plunging further into debt to risk on the market. — J.R.[[In-content Ad]]