In a sign that Washington is slowly returning to normalcy, the President’s Commission to Strengthen Social Security recently held a public hearing on the future of Social Security reform, its first since the terrorist attacks on the World Trade Center and the Pentagon.
Social Security reform? In the wake of Sept. 11, it may seem hard to get excited about something as mundane as reforming Social Security. Yet the problems facing Social Security have not changed. And Congress would be negligent to allow those problems to get worse. (Also, such reform would provide a strong, multi-billion-dollar stimulus to the economy. Something American workers and businesses need.)
Prior to Sept. 11, Americans understood that the nation’s retirement program was financially unsustainable, provided a poor and deteriorating rate of return for young workers, treated working women and minorities unfairly, and gave workers no ownership or control over their retirement income. All those things are true today, post-Sept. 11.
In fact, it may be more important than ever to move aggressively on the issue. Social Security currently faces a future deficit of more than $22 trillion. Without massive tax hikes or massive benefit cuts, the federal government will have no choice but to shift enormous amounts of General Revenue into the program.
As time goes on, more and more of the federal budget will go to propping up Social Security. Indeed the Concord Coalition estimates that, without reform, Social Security, Medicare, and Medicaid will eventually consume the entire federal budget. That means less money available for national defense, anti-terrorism efforts, or any other national priority. In fact, by 2038, Social Security alone will require $330 billion in General Revenue (in today ‘s dollars), an amount roughly equivalent to this year’s entire budget for national defense.
Social Security privatization offers a way out of that conundrum without cutting benefits or piling more taxes on burdened workers.
A second post-Sept. 11 consideration for Social Security reform is the effect of reform on economic growth. Congress and the president are struggling for ways to stimulate the economy in the attack’s aftermath. While short-term stimulus is important, we should also be considering ways to strengthen the economy for the long run.
A shift to a private system, with hundreds of billions of dollars being invested in individual retirement accounts each year, would likely produce a large net increase in national savings, depending on how the government financed the transition. This would increase national investment, productivity, wages, jobs and economic growth. Replacing the payroll tax with private retirement contributions would also improve economic growth, because the required contributions would be lower and those contributions would be seen as part of a worker’s direct compensation, stimulating more employment and output.
Harvard economist Martin Feldstein estimates that privatization of Social Security would produce $10 trillion to $20 trillion in net present value benefits to America. Most of that would probably come in the form of the higher returns and benefits earned for retirees through private investment accounts. But some would come in the form of higher wages and employment for working people.
Certainly for the foreseeable future, America’s number one priority must be winning the war against terrorism. Yet, a great nation can walk and chew gum at the same time. We cannot afford to allow the war to prevent action on other issues that are vital to our future. After all, what we choose to do about Social Security will still be affecting our children and grandchildren long after Osama bin Laden is moldering in his well-deserved grave.
As with the war on terrorism, President Bush has been willing to provide the nation with leadership on this issue. Now, let’s see if Congress has the courage to follow him.