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Moments of candor

Treasury Secretary John Snow pitches the president's Social Security plan but also acknowledges some hard truths.

In town to promote President Bush's Social Security plan, Treasury Secretary John Snow had this to say: "It's the big, big issue." Only he was referring to Medicare and Medicaid, not Social Security. Snow admitted that because of the rising cost of health care, the two government medical programs could "be the whole budget of the United States at some point."

So why is the Bush administration obsessed with Social Security? Yes, the retirement program has a long-term funding problem, though not as severe. And Snow had some thoughtful comments on how so-called "personal accounts" invested in the stock market would work. No get-rich-quick scheme, they could take 35 to 40 years to realize their full potential, he said.

None of that has much to do with saving Social Security from the coming demographic challenge of fewer workers and more retirees. Snow acknowledged as much. "I'm not going to argue that the personal accounts solve Social Security alone," he said.

What would solve Social Security? In a moment of candor, Snow put two fixes on the table that actually would make the 70-year-old retirement program whole far into the foreseeable future: altering the formula for benefits and lifting the cap on payroll taxes.

Now initial Social Security benefits are tied to wage inflation, which rises faster than prices. By applying a price index to benefits instead, benefits would rise more slowly in the future and therefore extend the program's solvency. Snow also said Bush has not ruled out raising the limit on salaries subject to the tax that funds Social Security. The salary cap is $90,000 now, but if it were lifted or raised substantially the program would be strengthened.

A combination of the two - slowing the rise of future benefits and increasing payroll tax revenues - would save Social Security all by themselves. Snow has the formula in hand. Yet he was in town to push private investment accounts, and he did so dutifully.

As Snow spelled it out, a combination of private accounts and accompanying benefit cuts - which is what Bush is proposing - isn't likely to leave retirees any better off than if the existing program were fixed. But the administration is selling personal accounts as though they are Social Security's salvation.

And while we debate a Social Security proposal that could create more problems than it would solve, we don't have to talk about Medicare and Medicaid.

[Last modified February 25, 2005, 00:51:16]