In recent weeks, President Bush convened his new Social Security commission to study options for reforming our national retirement system. Politically, their charge is to figure out how to implement private investment accounts as a part of the Social Security program. In a most un-political utterance, they reminded Americans of what we should already know: any reform of Social Security must necessarily entail cutting future payments to younger and middle-aged folks.
How can that be? Surely the Congress didn’t go along with a $1 trillion-plus tax cut without being certain that Social Security was on sound footing! Yes, it did. The tax cut was marketed as having the immediate impact to jump-start our sluggish economy though, in fact, it really doesn’t. Substantial savings, if they survive future Congresses, are years away. So are the harsh realities of Social Security.
Wouldn’t it have been prudent to forego the tax cut and invest the federal surplus in fixing Social Security? On the surface, it would seem so. However, from a conservative point of view, Congress could not be trusted with the people’s money. They would never be able to resist the urge to spend, spend, spend. Therefore, it is better to give the people their money back through a tax cut than entrust it to Congress.
So, now we have a tax cut coming and Social Security is going into the ditch. In defense of the Bush philosophy, the surplus would not have been adequate to salvage Social Security in its present form even if both spending and tax cuts had been foregone. Fat chance! According to U.S. Comptroller General David Walker, “Even if we saved every dime (of the surplus), by 2050 all the government’s revenues would be spent on old-age benefits.” Now, that’s a frightening scenario.
What can be done? There is general agreement that the government has promised more than it can deliver. The Social Security system put in place in the 1930’s is going to be killed by the changed age demographics in America. People are living longer and the baby boom generation is real big.
When baby boomers reach retirement, there will not be enough workers working to support us retirees. The first step toward a solution is admission of the problem.
Having admitted that we have a problem and it can’t be fixed by tweaking, the next logical step is to modify the program to something that we can afford. Any national politician who publicly agrees with me has just committed political suicide. Fortunately, I’m not running for anything and am free to call the shots as I see them.
The American Association of Retired Persons is composed of a legion of middle-aged and over Americans who are committed to destroying any politician who meddles with Social Security. The political reality is that nothing much can be done until the crisis is upon us.
Since the payroll tax being collected from our paychecks goes to pay current benefits to retirees, I fail to see where the money is going to come from to finance private accounts. I have repeatedly asked this question since Candidate Bush first proposed these accounts and haven’t found an answer yet. The politically illogical conclusion would be to reduce benefits to existing retirees so that younger people can seed away a portion of their Social Security taxes in a private investment account. Try selling that one to the “gray panthers!”
Ultimately, it is going to require higher taxes, cutting benefits and increased national debt to get through this century. We will be forced to re-define Social Security as a “supplement” to our retirement, but not the whole enchilada. Now is a good time to develop a plan for maintaining your standard of living into the “golden years” by putting back a little bit every payday. Ignoring this sage advice will be hazardous to your financial health.
Thought for the Moment — No one has ever seen God; but if we love one another, God lives in us and his love is made complete in us.
— 1 John 4:12
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at firstname.lastname@example.org.