It's been said politics in the '90s is like cotton candy. A lot of spin, a little bit of sugar and if you eat too much you get sick. This is not true, however, when it comes to the politics of Social Security reform. It's a sugar-free zone.
Whenever anyone gets close to uttering the three words together, legions of status-quo crusaders and current beneficiaries march straight to the nearest microphone and with all the rhetorical vinegar they can muster decry the evil of those who would dare touch this golden goose. Politicians cower. Everyone else holds onto their IRAs and 401Ks and tunes out.
Here's a perfect example: One of the 24-hour news networks did a feature story on the entitlement crisis a while back that included the usual "opinions of real people from a coffee shop near you" segments. One of those opinions was from a nice older lady who could have been my grandmother. When asked: "What do you think of plans to privatize Social Security?" this sweet old lady turned into the Wicked Witch of the West, hissing, "Lay your hands off my Social Security. I've worked my entire life to build up that money!"
Here's the problem. Her objection is founded on two vital misconceptions: Social Security actually has a trust fund people put money into for their retirement. Reform plans will directly affect current beneficiaries.
The challenge of reform is made ever more difficult by these myths and politicians who claim that a solution can be devised by minor tinkering. The truth is the exploding costs of Social Security and Medicare threaten to become the greatest financial crisis in American history. The difference between the benefits we've promised our parents and the money Uncle Sam expects to collect from payroll taxes is twice as large as our national debt and exceeds the cost of all the wars fought in our nation's history. No simple adjustment can correct this colossal shortfall.
Why? Social Security is not now and never has been a program of retirement savings and investment. Instead, Uncle Sam has used our payroll taxes to play a giant shell game. Taxes taken from today's workers are not invested in real assets, or even put in a tin can and buried in the backyard. Instead, money races out as fast as it comes in to pay current benefits and to finance pet projects of current politicians.
This program has served us rather well until now, but a chain-letter approach can only survive for so long. Currently, 77 million Baby Boomers are paying 60% of all payroll taxes collected. Soon however, all those Baby Boomers will begin to retire. When they do, Social Security goes bust. In fact, 20 years after my parents generation starts to retire the retirement rolls will be growing almost four-and-a-half times as fast as the employment rolls. By that time, we will face the choice of increasing the payroll tax on working Americans by 33% or reducing every Social Security benefit check by 25%.
It doesn't have to be that way, however. Here at the National Center for Policy Analysis, we've published a study by Sen. Phil Gramm that outlines a transition to a brighter future. It's a plan that offers a way to fulfill our promise to our grandparents while ensuring a better future for our children. He calls it Investment-based Social Security.
The crux of the idea is to begin a 40-year transition to a system that allows workers to place a portion of their payroll tax dollars in private investment accounts which they – not the government – own. The private investment funds would be managed by professional money managers, certified for safety and soundness and regulated by a new Social Security Investment Board.
Whatever reform plan we decide to support, one thing is certain: America cannot continue the shell game any longer. Something must be done and it is up to my generation, commonly referred to as Generation X, to make sure it does.
We cannot bury our heads in the sand thinking our IRAs or 401K plans will protect us when Social Security fails us, and allow a generation with nothing to lose but motivated by fear and ignorance, to give Congress political cover for inaction. If we do, we will be thrust into an America with payroll tax rates skyrocketing to unsustainable levels, effectively making us all indentured servants.
Where there was once an American dream, we will have created an American nightmare.