Dallas, TX –
Most of the Social Security debate is bogged down in numbers, but it's really a debate about philosophy.
Background - which this audience is familiar with: in 1937, there were 40 workers for each retiree; there was a one percent payroll tax on the first $3000 if income. Today, there are about three workers for every retiree; payroll tax is over 12 percent on $90,000. The money doesn't go into a so called trust fund; it's used to pay retirees. The government has been collecting a lot more than it needs to pay out, but it's been spending that money on other programs.
When does the fund get into trouble?
The answer to that is a political one - depending on which assumptions you make - but I'll go with Scott Burns of the Morning News who says - hold your breath - 2010, just five short years away. I won't go into the complex numbers which get him there.
There are two philosophies about Social Security. At one extreme is the view that government should have no responsibility and people should provide for their old age. You earn your money. You keep it.
At the other extreme is the view, articulated by Swarthmore College professor Barry Schwartz, who says the 12 and half percent you contribute from your paycheck isn't your money at all. It's the government's money to allocate as it sees fit. That presumes that politicians are never influenced by who might vote for them. And of course, they've steadily raised benefits by saying people need the money, people who are then grateful and vote for them.
This view says we can "fix" Social Security and never change any of the benefits or assumptions. That "fix" includes raising the tax two percent to 14.5 percent, and if the proponents of this approach are honest, it means cutting benefits for higher income people, a so called "means" test.
There's actually no one today arguing that government has no role in creating a safety net. But there's a sizeable, bipartisan group around the proposition that we can share responsibility. And money - that the wage earner who pays the tax deserves to be able to benefit from the miracle of long term investing. There's a huge debate over how to allocate the funds, whether the taxpayer should keep half of the payroll tax, one-third, half of the first xx-thousand dollars. I'm not entering that debate - I am pointing out the philosophy drives the ultimate solution.
I'm betting that most people are in a "let's share" mode. We split the money - the government gets half your payroll tax to pay out now, and you get half to invest. First argument: can we trust you to invest responsibly? Well, government workers do now. They have a choice of funds, conservatively managed; can't get their hands on your money until retirement or death (in which case their heirs get the money).
Does this leave Social Security short of funds? Actually no, the elimination of Social Security liabilities in the future is so great that there is no so-called funding gap or transition cost - if - government puts the extra money into a real "trust fund" and doesn't spend it. But politicians aren't going to cut the budget. They'll keep spending that money. Is there another way to cover the gap? Yes. Raise the payroll tax to cover all income. A huge tax increase but palatable if I get my hands on half my payroll tax. In about 40 years, workers would get to keep around three quarters of what's called the payroll tax but which would transition into a real retirement bonanza.
Is this a doable deal? It's better than the alternatives.
Merrie Spaeth is a communications specialist based in Dallas. If you have opinions or rebuttals about this commentary, call (214) 740-9338 or email us.