HOW HE SEES IT Social Security crisis looms

By DAVID NICKLAUS
ST. LOUIS POST-DISPATCH
The latest report from the Social Security trustees is chock-full of numbers and dates, but most people seem to have focused on a single year: 2040.
That's when the system is projected to run out of money -- an alarming thought, to be sure, but a distant one. With the problem 34 years in the future, politicians can easily pretend that it doesn't exist.
Unfortunately, 2040 will be far too late to avoid a crisis. The Medicare trust fund will run out of money in 2018, fund trustees' project.
In fact, we need to act long before the insolvency dates arrive. "The government is going to have a cash-flow crisis long before the Social Security trust fund is empty," said Rudolph Penner, a senior fellow with the Urban Institute in Washington.
Penner's pick for a red-letter date would be 2011, when the oldest baby boomers become eligible for Medicare. (Some of them will start collecting Social Security just two years from now, at age 62.)
"Shortly after that, you begin to see a dramatic acceleration in spending," Penner said. "I don't know at what point financial markets will become really concerned, but it will certainly be long before 2040. Based on the European experience, maybe in 10 years and certainly in less than 15 years people will start to lose confidence in our public debt unless we do something about these programs."
Italy and Sweden, for example, faced financial-market panics before they fixed their retirement problems in the 1990s. Italy increased retirement ages and raised taxes; Sweden introduced private accounts.
Raising the retirement age is the most sensible, and perhaps the easiest, way to trim costs. After all, life expectancy has increased since Social Security and Medicare were established in the 1930s and the 1960s, respectively. It wouldn't be fair to change the rules for anyone who's 50 or older, but a 35-year-old would have plenty of time to plan for an eligibility age of, say, 70.
Unfortunately, polls show voters would rather take reduced benefits than delay retirement.
Various combinations of changes would make Social Security solvent. Raise the retirement age; index benefits to prices instead of wages; raise the ceiling for the payroll tax; and perhaps throw in private accounts as a sweetener for the folks who are upset about higher taxes.
The variety of options leave room for a grand compromise, if someone would provide political leadership. Yet President Bush has effectively dropped his plan for partial Social Security privatization, and Democrats have provided no alternative.
"My discouragement on this issue is bipartisan," said Murray Weidenbaum, the Washington University economist who served as an adviser to President Ronald Reagan. "I hope I'm wrong, but I don't expect any action until the next president takes office, and even then it's not likely to be top of the agenda."
If the next president needs two years to put a plan into place, we're looking at 2011, the same year those baby boomers start turning 65. We can only hope that the nation's credit will remain good until then.
X David Nicklaus is a columnist for the St. Louis Post-Dispatch. Knight Ridder/Tribune Information Services.