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Details, details

In his State of the Union speech, the president offered an idealized vision of privatized Social Security, overlooking the costs and risks associated with it.

Americans eagerly awaiting details of how President Bush intends to privatize Social Security had to be disappointed with what they heard Wednesday night. Bush has made fundamental change of the 70-year-old retirement program his top domestic priority, yet he said nothing in his State of the Union address about how he would maintain the program's financial integrity. Instead, he painted an idealized vision of how private accounts would be "a better deal for younger workers."

Even that may prove to be untrue, but before the debate can begin, Bush and Congress have to announce how they will pay for a massive overhaul of Social Security. The administration didn't get off to a credible start, releasing cost estimates for private accounts that understate the true burden on taxpayers and retirees. The administration says the changeover would cost $750-billion in the first decade, but other projections are more than double that amount. Everyone seems to agree that over several decades, privatization would cost trillions of dollars.

Bush is leaving it to others to decide how to pay the bills, although he is making it more difficult by removing a likely source of revenue - a payroll tax increase - because it would "jeopardize our economic strength." Now, workers pay 6.2 percent of their wages into Social Security, with salaries subject to the tax capped at $90,000. By raising the cap to cover higher earnings, Social Security could be made solvent indefinitely, yet Bush apparently rejects that common-sense solution.

We've heard it all before, particularly when he justified tax cut after tax cut and turned a surplus into a record budget deficit. What Bush failed to acknowledge Wednesday night is that by borrowing the money to offer private accounts, he would saddle young workers with a growing national debt that could cancel out any potential benefit. Such an outcome is at least as great a threat to the nation's economic strength as a distant Social Security shortfall.

Bush misled Americans once again on when that day of reckoning is due, saying Social Security "is headed toward bankruptcy." It's a powerful image, but greatly exaggerated. Actually, current revenues will sustain the program for at least 13 more years and the accumulated trust fund will guarantee promised payments for the next four decades.

Adjustments that are much less drastic than what Bush proposes could put the program on the right course. He listed some of those choices, which admittedly would take political courage, but attributed them to others: increasing the retirement age, discouraging early collection of benefits, revising the benefits formula so that recipients would receive less in the future.

The only clarity Bush provided was on how the private accounts would work, which did include some thoughtful restrictions. Those born after 1949 would be able to put most of their payroll tax deductions into investment accounts that would be "a conservative mix of bonds and stock funds," he said. The accounts could not be withdrawn early, and some portion would have to go to buy an annuity at retirement that would last until the recipient's death.

None of that guarantees future retirees more money, however, or even as much as they would get under the traditional program. While the Democrats' repudiation of private accounts as "Social Security roulette" overstates the case, privatization would introduce more risk and uncertainty into retirement.

Americans heard none of these warnings from Bush. With Democrats apparently unified against privatization and many Republicans skeptical, he has a difficult task ahead. It is still not clear why the president decided to fix a popular program that is not broken, but bypassed others that are, particularly Medicare.

What it may come down to is whether Americans trust Bush to do what is right for Social Security. So far, he has not earned that trust.

[Last modified February 4, 2005, 00:18:17]