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Letter to the editor

Save Social Security from White House

By BOB GRAHAM
Published December 26, 2004

During my lifetime, five events have most affected Florida and its prosperity: mosquito control; air conditioning; jet air travel; Fidel Castro; and the creation of Social Security and other retirement income programs.

The first three are deeply entrenched in our society, and I look forward to Castro passing from the scene. Social Security, however, is at a crossroads. President Bush and his Republican allies in Congress seem determined to unravel the most important social safety net in this nation's - and Florida's - history.

The strength of the current Social Security program is that it gives workers a guaranteed, inflation-protected retirement income for as long as they live. No one gets rich from Social Security - the average monthly benefit per Floridian is $900. But for many Americans, it serves as their principal protection from poverty. This is particularly true for the nearly 7-million Americans who receive benefits much earlier than retirement as a result of becoming disabled.

The president wants to change the current program by allowing some workers to direct a portion of their payroll taxes into an individual account. The president has not presented the details of his proposal. Based on the work of the president's Social Security commission and comments from the White House, it appears that the president is likely to propose no change in the benefits for current retirees or workers who are 55 or older. For the under-55 worker, there will be gradual changes in the benefit structure until the benefits are actuarially supportable by the current Social Security tax. Using 2004 policies and value of the dollar, when fully implemented this benefit change is estimated to reduce the current average of $900 a month to about $700 in guaranteed benefits. The under-55-year-old worker would also be able to further reduce the guarantee to about $525 in exchange for the establishment of an individual retirement account. The hope would be that the earnings on the individual account return the total monthly Social Security benefit to at least $900.

Floridians should pay close attention to this effort. Florida has a higher proportion of seniors than any other state, with nearly one in five residents age 65 or older. One dollar out of every $14 in benefits paid by the Social Security Administration goes to a resident of Florida. Perhaps more than any other state, Florida's economy has benefited from seniors having a stable and adequate income in retirement. The nearly $3-billion in monthly Social Security benefits paid to Floridians in 2002 represented 6.5 percent of total personal income received in Florida in that year and contributed more to Florida's economy than did all of the state's manufacturing activity.

The president's proposal raises three concerns. First, it increases the uncertainty that workers face as they plan for their retirement. Most Americans now retire to a chair that has three legs: an employer-provided pension, personal savings and Social Security. The potential for higher retirement income that proponents of privatization herald comes with significantly greater risk. This is in addition to the increased risk that workers bear when employers shift from traditional pension plans to defined contribution plans such as 401(k)s. Under defined contribution plans, employers commit only to contribute a set amount into a worker's retirement account. Typically, a substantial amount of the worker's personal savings are committed to matching or supplementing the employer's contribution. Whether these funds accumulate to an amount that will provide an adequate income in retirement is up to the worker's investment acumen. Now the president believes that workers should shoulder this risk as part of Social Security as well.

Those who elect for individual accounts will have all three of the legs dependent on their skill and luck and the market's swings. This violates a fundamental rule of investment: diversify, diversify, diversify.

The second concern is that the president is using "fuzzy math" to sell his plan. He is exaggerating the problems facing the current program by suggesting that it is underfunded by $10-trillion. To be sure, Social Security faces a funding challenge, and each year of delay makes fixing the program more difficult. But according to the nonpartisan Congressional Budget Office, the Social Security Trust Fund will remain solvent through 2052, with the ability to pay 80 percent of benefits after that. But exaggerating the challenges facing the program is not necessary.

From its beginning in the 1930s, Social Security has been funded by current workers paying the cost of current retirees. The estimated cost of breaking this intergenerational social contract is $1-trillion over 10 years. There is no hard or fuzzy math as to how to pay for this transitional cost. There is one preposterous idea not to pay for it at all, just add it to the already burgeoning national debt. Let our grandchildren pay. This is immoral.

The final concern with the president's plan is that he refuses to consider other viable options for shoring up the program. According to the Congressional Budget Office, Social Security's revenue shortfall is less than one-half of 1 percent of the nation's economy. The entire Social Security shortfall over the next 75 years is about one-fourth the cost of the Bush tax cuts if made permanent. The revenue loss from the president's proposal to repeal the estate tax would cover nearly two-thirds of the shortfall.

In his 1998 State of the Union address, President Clinton proposed saving Social Security first. There was wisdom in that statement. This led to budget surpluses, a booming economy and the opportunity to pay off America's public debt. President Bush rejected that opportunity - he opted for tax cuts for the rich first. We now need to defeat ideas that would kill Social Security as we have known it, especially when it is sold under the banner of salvation.

Sen. Bob Graham, D-Fla., is retiring after 18 years in the Senate.

[Last modified December 25, 2004, 23:09:18]