HOW HE SEES IT Fix Social Security -- without privatization

By JACK Z. SMITH
KNIGHT RIDDER NEWSPAPERS
In his State of the Union message last week, President Bush resurrected his vague plan to partly "privatize" Social Security by permitting younger workers to divert part of their Social Security payroll taxes into "personal retirement accounts."
But Bush has yet to present the American public with final, specific recommendations for implementing those private savings accounts or for addressing crucial long-term funding issues facing the Social Security program.
Nor has he apologized to the American public for violating a 2000 campaign pledge not to raid surplus Social Security payroll tax revenues and use the money for other government expenditures.
On May 15, 2000, when running for president, Bush called Social Security "the single most successful program in government history."
"Without it, more than half of all seniors would live in poverty," he noted in a speech at Rancho Cucamonga, Calif.
Lack of enthusiasm
But Bush and many other Republicans in Washington don't seem to have genuine enthusiasm for Social Security. If not for the potential political backlash, many Republicans probably would support fully privatizing it or phasing it out entirely.
Republicans often claim that Americans could accumulate more savings for retirement by voluntarily investing on their own. I'm all for people doing that. But Social Security isn't merely an individual investment plan like, say, a 401(k) offered by your employer.
Social Security is a great social safety net for the entire nation. It doesn't just provide retirement, or "old age," benefits. It also provides benefits to disabled people and to the spouses and children of deceased workers.
Social Security has enabled many millions of Americans to escape poverty. It is the chief source of income for most Americans 65 and over, and the only regular source of income for many.
It is basically a "pay-as-you-go" program, with payroll taxes going directly to pay benefits.
That's one major problem with allowing young workers to divert part of their payroll taxes into "personal retirement accounts." That could leave the government short of money to make benefit payments, unless benefits were severely cut or payroll taxes sharply raised.
A program permitting private savings accounts also would be more costly and complex to administer.
Social Security faces a looming financial crisis because people are living longer and a wave of baby boomers soon will begin retiring. By 2018, Social Security will be paying out more in benefits than it collects in revenues, program trustees forecast.
But Social Security should be preserved basically as it is now because it has been -- and still is -- an excellent program.
Courage necessary
Bush and Congress need to muster the political courage to take some painful, practical steps to shore up Social Security, as was done in the early 1980s.
For example, the age for receiving full Social Security retirement benefits could be gradually and very modestly increased for future retirees to reflect the fact that people are living several years longer than they did in earlier decades. An increase of, say, one year -- phased in over 10 years -- would be reasonable.
In addition, the payroll tax should be collected at higher levels of income. This year, Social Security payroll taxes will be collected only for income up to $87,900. The cutoff point could be raised to $100,000 and gradually increased further in future years as incomes rise.
The payroll tax for Social Security, now 12.4 cents per $1 earned for worker and employer contributions combined, also could be raised if necessary. A modest, phased-in increase of 1 cent per $1 would significantly strengthen the program.
There's no need to privatize Social Security, making it more complicated and costly to administer. It should continue to be operated by the federal government and worker contributions into the system must remain mandatory.
Quick action needed
Bush and Congress need to act swiftly. The sooner remedial measures are taken, the less severe those measures will need to be.
If Social Security were "privatized" or if contributions were voluntary, many millions of Americans simply would not set aside as much money for retirement.
If Social Security were eliminated, it would leave many more senior citizens, disabled people and surviving spouses and children of deceased workers in poverty. But because we as a country would not tolerate that, taxpayers eventually would pick up the tab for new government relief programs to fill that void.
It's wonderful that many Americans have investment plans such as 401(k)s, IRAs or other private saving mechanisms. But those plans don't eliminate the need for Social Security, America's splendid social safety net.
XJack Z. Smith is a columnist for the Fort Worth Star-Telegram. Distributed by Knight Ridder/Tribune Information Services.