Interview ¦ Monday, July 2, 2001

Social Security Overhaul Questioned
As panel readies report, some doubt need for changes

By Donna Smith

WASHINGTON - The White House's Social Security commission is rekindling a fight over whether the 66-year-old retirement program needs an overhaul, as the panel lays the groundwork for its recommendations on private investment accounts.

The commission is preparing to report by the end of the month on the financial problems that will face Social Security when the baby boom generation begins to retire a decade from now. Already, lawmakers, administration officials, and analysts are squaring off over the extent of the retirement system's financial woes.

"I don't think there is a problem at all," said David Langer, an independent New York actuary who has examined data used to determine the long-term financial health of the system. "It gets down to the assumptions."

Langer said the Social Security trustees use overly pessimistic assumptions about economic growth, labor force expansion, birth rates, and interest rates that show the system in long-term trouble. Assumptions based on actual economic experience show the system in good financial shape, Langer said.

President Bush bucked conventional political wisdom - that politicians would self-destruct by preaching overhaul of the popular program founded during the Great Depression - when during his election campaign he advocated setting aside some Social Security taxes to set up private accounts for workers.

He and other proponents of privatization argue that allowing workers to invest part of their tax money in stocks and bonds would boost their rates of return and give them an asset they could leave to heirs.

The idea is particularly appealing to young people, but opponents argue that it would exacerbate the financial problems already facing the retirement system, requiring substantial benefit cuts to cover the cost.

Members of the bipartisan commission appointed by Bush expect to make recommendations on private accounts later this year. The panel plans to review the system's finances in a report expected to be released by the end of the month.

Treasury Secretary Paul O'Neill came under fire from Democrats in the House of Representatives when he told financial executives in New York last month that the trust fund had no assets, just promises from the US government that the benefits will flow.

Two top Democrats on the powerful House Ways and Means Committee - Representative Charles Rangel of New York and Representative Robert Matsui of California - fired off a letter to O'Neill noting that the assets held by the trust fund were the same US bonds held by investors around the world. They accused him of making reckless comments that could undermine public confidence in the retirement system.

The problem facing lawmakers and the Social Security system is that revenues going into the trust fund were lent back to the US government and spent on other programs.

Bush's commission will probably focus on 2016, when Social Security will no longer collect more in taxes than it pays in benefits and will begin to draw on the trust fund, which consists of interest-bearing government bonds.

At that time, lawmakers will face politically unpalatable choices to repay the trust fund: raise taxes, cut benefits, cut other government spending, or borrow the money in financial markets.

"You have got to find money with which to pay the bond, with which to pay the benefit," said Michael Tanner of the Cato Institute, a conservative think tank that has been advocating private Social Security accounts since 1979.

Private Social Security accounts will not change the realities facing lawmakers in 2016. The concept may force them to make those tough decisions even sooner, Tanner acknowledged. But he said it would improve the long-term outlook as the government stops accumulating a debt to Social Security beneficiaries.