The recent exchange of volleys between Gov. George W. Bush and Vice President Al Gore on Social Security is the opening salvo in what promises to become a central issue in the 2000 presidential campaign.
They could not have chosen a better battle ground. Social Security covers virtually every worker. It provides benefits to 44 million people. The payroll tax is the largest tax for three quarters of U.S. families. The two parties have radically different visions about how much of projected budget surpluses should be used to shore up Social Security’s finances and what form this program should take.
Just a few weeks ago, the annual report on the financial prospects of Social Security indicated that the program is stronger than it appeared to be just last year and much stronger than three years ago. Gore responded by proposing to fatten benefits. Bush then announced that he favors replacing some part of Social Security with some form of individual accounts. But he turned bashful when asked to specify just what changes he favored. Elect me first, he said, I’ll work it out later and tell you when I am in office.
If the differences among the many individual account plans were minor, Bush’s promise to fill in the blanks later might be acceptable. But individual account plans now on the table have radically different implications for workers today and in the future. Voters cannot form a judgment unless the candidates say what they mean.
The improvement in the prospects of Social Security contained in the recently released reports was striking. Social Security’s revenues will exceed outlays by more than $150 billion this year, more than 50 percent higher than anticipated three years ago. The trust fund is expected to stay in the black until 2037, eight years longer than projections indicated just three years ago. And the projected long-term deficit is about 15 percent smaller than it was just three years ago.
Then, as if to remind us that the recent spate of good economic news might not continue, the stock market plummeted shortly after this report was published.
These two events carried some important lessons. The first is that it would be foolish to be stampeded into radical changes in Social Security based on bogus fears that the program is in crisis. To be sure, a projected long-term deficit remains and the nation should act promptly, but not hastily, to close that projected deficit.
Closing the remaining projected long-term deficit in Social Security is technically easy, if politically difficult. A variety of modest steps would suffice, including investing part of the reserves in higher-yielding assets than Treasury bonds, transferring a small part of non-Social Security budget surpluses to Social Security, modestly increasing the payroll tax wage base and extending coverage to state and local employees who remain outside the system.
The second lesson is that the fundamental objectives of Social Security—to assure retirees, the disabled and survivors a reliable basic income—cannot be achieved by a system subject to the frightening oscillations endemic in financial markets. But critics of Social Security, such as Bush, deny this point. They claim its fundamental purpose can be achieved better by forced saving through arrangements similar to individual retirement accounts and 401(k) plans.
Even if one were prepared to overlook the fact that accounts subject to wild financial market oscillations cannot assure basic income, the cost of administering Social Security—less than 1 percent of benefits paid—is far lower than the 20 of the projected budget surpluses to augment Social Security balances, how much he would cut the assured income Social Security provides, what assets individual accounts could be invested in, what protections he would provide for women, how he would assure that people do not outlive their account balances, and numerous other important “details.”
Gore has indicated that he supports retention of the current system, supplemented by other measures to encourage private saving, and supports the Clinton administration proposals to divert part of the budget surpluses to augment Social Security balances. But he also owes the public a fuller explanation of how he proposes to close the part of the projected Social Security deficit that would remain even if all the proposals of the Clinton/Gore administration were put into effect.
Here are two quite different visions for the government program that matters more to most American families than does any other. This is the sort of fundamental question around which presidential campaigns should be fought.
But the electorate can make an intelligent choice only if the candidates explain their positions. Saying “Trust me! Have I got a deal for you!” just won’t do.