Debating Social Security

Given their similar uses, it is easy to see why Social Security might be confused with an individual retirement account, in which a participant puts in money, gains interest tax free and then draws on the account upon retirement. And unlike Social Security, IRAs can be passed on as inheritance. Social Security, on the other hand, is a public pact, in which working Americans put up money for current retirees with the governmental promise that upon the workers’ retirements, there will be money available to support them, too.

That fundamental difference explains why, unlike an IRA, most people receiving Social Security benefits get back substantially more than they contribute, even accounting for the interest their contributions earned. The average contribution plus interest, in fact, produces just seven years’ worth of benefits. No one has suggested cutting off Social Security benefits once a retiree uses up the equivalent of his or her lifetime contributions. Nor should they.

Gov. George W. Bush’s proposal to allow workers to invest a portion of their Social Security money in the stock market, however, raises questions about the nature of the public pact. Gov. Bush outlined merely the general idea, and an increasingly common one at that, of privatizing a part of Social Security and did not deserve the scolding that his presumptive presidential rival, Vice President Al Gore, offered. Still, the governor didn’t address the most basic questions: where would the money come from to allow the investments without cutting current benefits and what happens to the investor who loses money?

Gov. Bush didn’t offer a percentage that workers would be able to invest privately, but a plan his staff reportedly has favored puts the number at 2 percent. A worker earning $25,000 a year pays $1,550 into FICA annually; 2 percent of that results in $31 per year for investment. Because the governor doesn’t want taxpayers to take unnecessary risks with that money, he added that day trading and “fly-by-night speculators” would be prohibited, suggesting some sort of government oversight for how the money was invested.

Vice President Gore’s suggestion for saving Social Security is to use tax revenues or, more specifically, the money saved in interest payments by reducing the national debt. Since its inception, Social Security was intended to be self-funding, which may be a reason that its trust fund has come to be regarded as sacrosanct. The vice president’s plan, which would toss out that history, seems simultaneously uninspired and risky to taxpayer wallets. But more importantly, neither presidential candidate has made a case that their plans are truly needed to repair what some economists view as, at best, a theoretical problem that small adjustments in the current system could address.

The candidates are to be commended for talking about an issue of importance to the public. As the campaign continues, however, it is not too much to ask that they demonstrate a need for their proposals before coming up with the solutions.