An old and venerable institution of the U.S. Government, Social
Security has recently come directly under the political spotlight,
with many believing that it requires significant reform.
It is widely accepted that, if it is allowed to continue along
its present course, Social Security will eventually become unable
to meet its obligations to retirees. Most politicians agree that
changes need to be made to Social Security if it is to remain
viable in the future, though some UCLA professors say that
privatization is not the right way to approach reform. Within the
current framework, a portion of all U.S. taxpayers’ taxes are
earmarked for Social Security. These funds are then used to finance
the current generation of retirees.
President Bush, in his current campaign to reform Social
Security, seeks to change this scheme by partially replacing the
government-owned fund with individually owned private accounts.
The funds in these accounts would then be paid out to the owner
in installments, said UCLA economics Professor Michael
Intriligator.
Some of these proposals have been met with significant
resistance both from the U.S. public and both sides of the aisle in
Congress.
“What he’s proposing won’t solve the problems
he says there are. Any real problem with Social Security is decades
away; the president is attempting to pull a fast one on the
American public,” Intriligator said.
The plans have also been criticized for their lack of specific
proposals.
“Bush does not have a true Social Security plan,”
said UCLA political science Professor Joel Aberbach. “He has
simply stated that there is an impending crisis and that he favors
private accounts.”
Aberbach also noted that any form of private account would carry
with it significant transition costs.
These costs would depend on the particulars of the accounts, and
it is not clear exactly what these costs would be.
“(Bush) is reluctant to put together a plan because that
means someone will have to pay for it,” Aberbach said.
Furthermore, Bush’s private accounts proposal is
essentially equivalent to many savings options that people
currently have, Intriligator said. A large percentage of Americans
currently own one or more private accounts in addition to the
public Social Security plan.
Intriligator pointed to one change that could be made to greatly
alleviate future shortfalls.
Social Security receives a portion of taxes on only the first
$90,000 of a taxpayer’s income.
This was done when the program was first proposed, Intriligator
said, with the intent that a taxpayer would receive benefits
approximately equal to what they had paid into Social Security
during their working life.
But this is not the case, Intriligator said, because Social
Security is not structured like a typical bank account or annuity.
Instead, it is set up so that taxes from the current generation of
workers pay for the Social Security benefits of the current
generation of retirees ““ a “pay as you go”
system.
“The limit on Social Security taxes should be
removed,” Intriligator said.
Both professors agreed that the generally negative reception to
Bush’s plans is also partly due to the presence of larger
problems.
They pointed to several areas that are currently in need of
attention, including Medicare and children’s health
insurance. These issues were also hotly contested during the 2004
campaign, and several pieces of legislation have been recently
introduced in Congress to address these problems.
The fact that the problems remain has contributed to a general
feeling of unease regarding Bush’s Social Security proposals.
But most agree that some sort of reform will be necessary if Social
Security is to remain effective.
The 2005 Social Security Trustees’ Report recommended that
the problems “be addressed in a timely way” to protect
the scheduled benefits of future retirees. Bush has struck the same
tone, insisting that changes should be made now rather than waiting
until the problems get worse. Almost 50 million Americans currently
receive Social Security benefits,
“It is still a huge benefit for retirees, and many people
rely on Social Security for their financial well-being,”
Intriligator said.
“Because of Social Security, Medicare and other programs,
we have taken a lot of the elderly out of poverty,” he
added.