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April 9, 1999/23 Nisan 5759, Vol. 51, No. 28
Clock ticking on Social Security
MICHELLE ACKERMAN
Staff Writer
For those who depend on Social Security to pay monthly living expenses - and those who expect it to be there for them in the future - the clock is ticking.
Social Security was founded in 1935, after bank failures and a stock market crash wiped out the savings of millions of Americans. The program currently taxes workers and their employers 6.2 percent each on earned income up to $68,400. It then pays a monthly stipend to retirees, as well as benefits to people who are disabled and to survivors of insured adults who die.
Today, six decades after the program was initiated, life expectancy has risen from 62 to 80 years, and there has been a fall in birth rates, since the so-called "baby boom" after World War II. Combined, these developments have put America on a path of decline in the ratio of the number of American workers for every Social Security beneficiary. According to White House statistics, in 1960, the ratio was 5.1 to 1, while today it is 3.3 to 1. In approximately 30 years, when the baby boom generation - those born between 1946 and 1964 - has all retired, the ratio will fall to just 2 to 1. Then, the money coming into the program would cover only 75 percent of what would be paid out.
In his Jan. 19 State of the Union address, President Clinton proposed a solution for keeping Social Security solvent until the year 2055, and indicated that he will seek additional, though so far unspecified, changes aimed at achieving a full 75-year actuarial balance.
"The best way to keep Social Security rock-solid is not to make drastic cuts in benefits, not to raise payroll tax rates, and not to drain resources from Social Security in the name of saving it," he said. "We must aim higher. We should put Social Security on a sound footing for the next 75 years."
The ideas Clinton outlined included using 62 percent of the projected budget surpluses over the next 15 years - $2.8 trillion - to save Social Security from insolvency.
Some of the money would be used to "buy back" publicly held debt, reducing government interest expenditures, increasing national savings, and stimulating economic growth. However, to make this scenario work, the U.S. economy must remain healthy for the 15-year period, and politicians in Washington would have to refrain from spending the excesses on other things such as tax cuts, education or the military.
The government would invest 21 percent of the transferred surplus - about $600 billion - in the stock market. Until now, the funds have been invested exclusively in U.S. Treasury securities - the safest investments available. All dividends would be reinvested in stocks until the market value of the shares reached 14.6 percent of the trust funds' assets. The index of stocks would be privately managed and overseen by an independent board.
Universal Savings Accounts (USAs) would be created, subsidized by a portion of the projected surpluses - 11 percent - to provide incentives for lower- to middle-income Americans to save for retirement, augmenting Social Security benefits. Currently, among couples older than 65, 91 percent have Social Security income, but only 42 percent receive benefits from other retirement plans.
The USAs would be partly financed by government contributions on behalf of each worker. Recent indications from the White House suggest that this will take the form of some sort of tax credit, with more help for low- and moderate-income workers, up to a currently unset limit.
Two other points the president addressed in his State of the Union speech were his desire to reduce poverty among elderly women - particularly widows (although the president did not specify how he would do this), and to eliminate the so-called "earning tests," a proposal which would allow more beneficiaries to earn money during retirement without reducing their Social Security benefits.
And recently, he has voiced his objection to "privatization," which would allow workers to invest some or all of their payroll tax money in Individual Retirement Accounts that invest in stocks and bonds.
Since his January address, Clinton has been advocating his plan at speeches around the country, including a February speech in Tucson. There, Clinton pointed out to an audience of more than 2,400 that "in Pima County alone, there are an enormous number of people over 65. The number has doubled just since 1980" all over the nation, including Pima and Maricopa counties. He added that "Social Security is not just a retirement program, it's an insurance program. One-third of all ... Social Security (payments) go to people who become disabled, or to the survivors of people who die prematurely from accidents, disease and other things."
U.S. Rep. Jim Kolbe (R-Ariz.), who has called Clinton's plan "a cynical shell game," last year joined U.S. Rep. Charlie Stenholm (D-Texas), and Sens. Judd Gregg (R-N.H.) and John Breaux (D-La.) to chair the National Commission on Retirement Policy (NCRP). The commission included 24 retirement savings experts who have worked to develop a plan they call the 21st Century Retirement Security Plan, which would create individual savings accounts, funded using a small portion of the current payroll tax, to provide for retirement.
Both Kolbe and U.S. Sen. John McCain (R-Ariz.) were unavailable for comment, despite numerous attempts by Jewish News to contact them.
According to a recent telephone poll conducted by Americans Discuss Social Security, a non-partisan project funded by The Pew Charitable Trusts and completed in February, "President Clinton's proposal to transfer billions from the federal budget surplus to Social Security claims a spot right at the top of the American public's list of favored solutions for the program's financial woes (59 percent support this proposal). But Americans are much more skeptical about other parts of his plan for saving the nation's retirement and disability income program."
The study also showed that only 36 percent of the public supports putting Social Security trust funds in the stock market, rather than in government bonds, and 53 percent is opposed to the suggestion - a wider gap of disapproval than in the August 1998 ADSS poll, in which the public opposed direct stock market investment by a 40-48 edge.
Asked whether they believed that using the budget surplus would remedy the Social Security problem, only 16 percent responded that they believed that this move alone would solve the system's problems. Seventy-four percent said that benefit cuts, tax increases and other changes would still be necessary.
As for Universal Savings Accounts, 76 percent were unaware of the proposal. Of the 24 percent that had heard of it, the reaction was favorable by a 54-36 margin.
The proposal earning the least support was the one to invest Social Security funds in the stock market; only 24 percent support the idea.
Mostly, the latest poll showed that Americans are becoming more interested in, and aware of, the Social Security debate - and they feel it is at the top of the list of domestic policy issues that the government should tackle.
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