President Bush continues his discussions across the country about his change to Social Security. The Social Security question has two basic components. First, is the philosophy of what Social Security is and what it should be for workers in America? Second, is the mechanics of how to maintain the solvency of Social Security?
Social Security has always been a guaranteed minimum retirement benefit for the American worker. Something that was predictable and guaranteed. The problem with the Bush solution is that it alters the basic philosophy of Social Security. What George W. Bush is proposing is to convert the floor into an elevator. There is no question that individual equity accounts hold the potential of increasing a worker’s retirement but it also holds the possibility of having less should the market be down at the time of a worker’s retirement. There is a place for individual equity accounts and that place is over and above the minimum guaranteed floor of Social Security. Therefore, we should maintain the philosophy of Social Security as a guaranteed minimum and encourage workers to create individual equity accounts during their working life IN ADDITION to Social Security.
If we are to maintain a guaranteed minimum for Social Security, we need to fund the system through the bubble of the baby boomers. At the present time, 3 1/2 people are working for every one receiving benefits. At the present time, the taxes being collected are more than the benefits being paid out. Because of the baby boomers that will change starting in about 2018 and there will be only two people working for each person receiving benefits. When the baby boomer bubble has passed (in about 70 years), the system will right itself and return to a relationship similar to what exists today. Therefore, the issue is to finance retirement benefits under Social Security for the huge increase in population that occurred after World War II. That should be done by increasing the Social Security Trust Fund so it can bridge the funding deficit created by that bubble.
There are two suggestions that have been made to help fund the Social Security deficit. One is to augment the trust fund by General fund revenues which will require us to first balance the budget. The second idea is to extend the income limit on Social Security wages (currently the first $90,000 of earned income) the same as the Medicare tax. That would cause many billions of additional tax dollars to flow into the Social Security Trust Fund. That additional money could then be invested in equities to augment the yield to the trust fund over and above the 3% that the treasury bonds are currently paying on bonds held by the trust fund. This concept has been successfully used in EVERY state pension plan in the United States. Why would we not duplicate a successful strategy that is keeping our state pension plans solvent for Social Security?
The American people need to contact their Senators and Congressman to tell them that they want to maintain the minimum guaranteed Social Security system and have it funded by increasing the Social Security tax limit and investing that additional money in a sound mix of equity investments. Although some might benefit from the equity accounts proposed by President Bush, I believe the guaranteed Social Security income is far more important to the vast majority of Americans! Every American worker should let Congress know how they feel. This is not a decision that should be made by the president or congress without knowing what the America people want!