Social Security: Don’t Panic

President Bush’s commission on Social Security reform has a long way to go if it hopes to forge a national consensus on how to keep the system solvent. The interim report adopted by the 16-member bipartisan panel drew heavy fire for what critics say is its panic-inducing exaggeration of Social Security’s problems and its bias toward diverting some payroll taxes to personal investment accounts. While some of the critics aren’t themselves strangers to hyperbole, their basic objections are on the mark. Things are not as bleak as the commission suggests, and personal investment accounts wouldn’t do much to keep Social Security healthy.

Two dates loom large in the Social Security debate. It’s projected that in 2016 benefits paid to retirees will begin to exceed payroll tax income. That would require dipping into Social Security’s surplus, which is invested in bonds that are IOUs on the Treasury. By 2038, projections say, the surplus will be gone and payroll taxes will cover only 72% of Social Security’s obligations. The choice then would be to cut benefits, boost payroll taxes or use general revenues to fill the gap.

Not necessarily, argues Rep. Robert T. Matsui (D-Sacramento), who sits on the Ways and Means Social Security Subcommittee. Matsui says that by 2016 the trust fund will have a $5-trillion surplus, producing enough interest so that the fund itself won’t have to be touched until 2024. Not until the fourth decade of this century would the surplus be exhausted.

Who’s right? Social Security’s trustees are required by law to peer far into the future, and they’re required to be conservative in their guesses about what lies ahead. That means they are likely to underestimate income while overestimating payouts. Everyone knows that retiring baby boomers will add greatly to Social Security’s obligations. But a growing economy and an expanding work force would mitigate the burden by generating higher payroll taxes. The point is that the numbers being worked with are not an error-proof guide to the future, but only estimates.

Matsui says the commission should be “thrown out.� The White House’s response is that if Congress had not ducked acting on Social Security no commission would have been needed. Fair enough, except that Bush is determined to see some payroll taxes diverted to personal investment accounts, an idea all of his commissioners are pledged to support. So far, though, neither they nor Bush has explained how cutting Social Security’s income would make the system stronger. If anything, that would only serve to bring closer the dark day of reckoning the commission warns about.