Congressman describes need for reform

Northwestern Financial Review, Apr 15-Apr 30, 2005 by Beauprez, Bob

Social Security

Recently, the House Ways and Means Committee held a hearing on the future of Social Security. We heard testimony from two Social Security trustees and the U.S. comptroller general - the government's chief accountant and their message couldn't have been more clear: In order to deliver promised benefits in a fiscally responsible way to current and future retirees, we must address Social security's challenges now.

The debate surrounding Social Security has unfortunately been dominated by partisan bickering and politically charged rhetoric, causing a great deal of fear and confusion. Let me be absolutely clear: No current beneficiary or near retiree has any cause for concern. The challenges are for our children and grandchildren.

For decades, Social Security has served us well. However, times have changed and the dynamics of Social Security's financing structure are not the same as when the program was created. As we accept this new reality and begin to discuss how to strengthen and protect this important program, it's imperative to acknowledge three irrefutable facts about Social Security if we're to have an honest and objective debate:

Social Security's "pay-as-you-go" financial structure is not sustainable for today's older population. The payas-you-go system means that benefits for today's retirees are paid by today's workforce. This finance structure worked well years ago when there were more workers paying for fewer retirees, but today we face a different reality. In 1942, there were 42 workers paying into Social Security for every one retiree receiving benefits. In 1950, there were 16 workers for every retiree, and today there are only three workers per retiree.

The Social Security Trust Fund contains no real assets. For all practical purposes, there is no "trust fund." The money that is paid into Social Security each year is used to pay the benefits for today's retirees, and what's left over is "lent" to the federal Treasury, where it is entirely spent on other government programs. In return, special-issue bonds are placed in a vault in West Virginia. So the "trust fund" consists of a bunch of IOUs created by the left hand of the government borrowing to pay the right hand.

It's worth noting that those IOUs aren't worthless; the U.S. government fully backs them and pays interest on them. However, in order to turn these bonds into cash to pay for future retirees' benefits, the government will have to undertake some combination of borrowing, cutting existing programs or raising taxes - all difficult choices with serious consequences.

Social Security will begin running a deficit in just over a dozen years. Today, Social Security takes in more in payroll taxes than it pays out in benefits. However, the Social Security trustees reported last year that while Social Security is currently running an annual surplus, its annual costs are projected to exceed its tax income starting in 2018.

In light of those facts, it's clear that we need to take a hard and serious look at the present path of Social Security, and in the words of Federal Reserve Chairman Alan Greenspan, we need to do it "sooner rather than later." The Social security Administration estimates that the program's shortfall is $10.4 trillion, and every year that Congress fails to act adds $600 billion to that amount. Much like a leaky roof, it's going to be a lot easier and cheaper to fix it now.

So far, most of the Social Security debate has been limited to the idea of personal accounts. While I've consistently opposed privatizing Social Security by investing outside the system with no guaranteed safety net, I've also consistently said the creation of voluntary personal accounts may be one part of a larger solution. A final solution to reforming the system will involve many more issues than just personal accounts, and I hope that as the discussion moves forward we can begin to focus on constructive solutions.

Generations of Americans have relied on Social Security's promise. As a moral society, we have the obligation to honestly and forthrightly address the challenges we face so our children and all future generations see the fulfillment of that same promise. We owe them at least that much.

By U.S. Rep. Bob Beauprez

U.S. Rep. Bob Beauprez, a former banker, represents Colorado's 7th Congressional District. This commentary appeared in the March 1 5 edition of the Denver Post.