Social Security report a hot issue

By Knight Ridder Newspapers and Chicago Tribune

Rep. Clay Shaw, R-Fla., says action is needed.

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Democrats seized on the report to criticize President Bush's proposed Social Security overhaul, which is expected to be a hot-button issue in the presidential race.

The 35-page report, prepared by the nonpartisan Congressional Budget Office, projected that the government's trust fund for Social Security would last until 2052, a decade longer than official estimates by the Social Security trustees. The budget office said payments to retirees would begin to exceed revenues in 2019, a year later than trustees projected.

Both studies agree that Social Security eventually will run short of money because the population of retirees will grow so quickly in coming decades that the Social Security payroll tax won't be enough to cover benefit payments. They differ on when the program will reach the breaking point because they make different assumptions about wage growth and other economic factors such as inflation and interest rates.

The later date in the CBO report backed Democratic assertions that the program will be sound for many years and can be fixed with minor adjustments.

Bush is calling for individual accounts within Social Security, a proposal he says would allow individuals to invest the funds and increase benefits.

Democrats deride the proposal as "privatization" of Social Security. They say it would jeopardize the guaranteed benefit that individuals are due under the current system. It also would require billions of dollars in transition costs to the new system, they say.

"CBO's new report is good news for Social Security and bad news for those who would privatize the program," said Sen. Jon Corzine, D-N.J. "Contrary to privatizers' repeated claims, Social Security is not in crisis, and will be solvent for many decades."

Democratic challenger Sen. John Kerry didn't address the report directly yesterday, but his campaign said the analysis confirms that Social Security isn't in imminent danger.

"President Bush should stop exaggerating Social Security's problems and using that exaggeration as a pretext for privatizing the program," said Kerry campaign spokesman Phil Singer. "Social Security faces a long-term challenge, but it is manageable."

Rep. Robert Matsui, D-Calif., a leading Democratic voice on Social Security, said the report "indicates this is not a crisis, but it's a problem that has to be solved with adjustments."

Republicans argued that the program needs reform.

"John Kerry and the Democrats know the system is in crisis but have failed to offer any solution, and doing nothing dooms future retirees to higher taxes and less benefits," said Scott Stanzel, a spokesman for the Bush-Cheney campaign.

Supporters of partial privatization say that the return on a worker's Social Security payroll taxes is too small, and that it could be greatly enhanced by allowing some investment in private financial markets.

More than two years ago, the President's Commission to Strengthen Social Security outlined three options for giving the system a greater private flavor. All three called for allowing workers to put a portion of their income into personal savings accounts, which could be invested in stock and bond markets.

Under one option, up to $1,000 a year of taxable wages could be set aside, and under another, up to $1,000 in payroll taxes could be put into such accounts. Under a third plan, the government would contribute $1,000 annually to establish personal accounts for workers who agreed to pay an extra 1 percent in payroll taxes.

Most experts say that any plan to put Social Security on sound financial footing, whether or not it includes individual accounts, will require some benefit cuts and some tax increases. In an election year, though, few politicians are brave enough to say so publicly.

Rep. Clay Shaw, R-Fla., head of the House subcommittee that handles Social Security, said the 2052 insolvency date is less important than 2019.

"From this date on, Social Security will need increasing transfers from the (Treasury) general fund, thus consuming budget resources for other programs, including Medicare and Medicaid," Shaw said. "Inaction only makes a decision harder."

Copyright © 2004 The Seattle Times Company

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