These projections throw all budget forecasts into a cocked hat. Social security and Medicare could cost $40 billion extra by the year 2000. ““People should think of working four months longer for each additional year they’ll be retired,’’ says Ronald Lee, a Berkeley demographer. Either that, or ““benefits must be cut back, or taxes must slowly be raised, or both,’’ he says. The impending life-expectancy revisions were likely behind budget director Alice Rivlin’s memo, leaked to the press, suggesting sticky choices ahead about social security. Rivlin’s office didn’t return phone calls.
title: “Social Insecurity” ShowToc: true date: “2022-12-09” author: “Lena Hines”
Daniel patrick moynihan can be a gloomy Irishman, but over the years Washington has learned to listen to his jeremiads. He predicted the collapse of both the inner cities and the Soviet system long before either seemed imminent. The senior senator from New York, who advised both John F. Kennedy and Richard Nixon, has been trying to shore up the welfare state since he was a professor at Harvard in the 1960s. Lately, he has heard the foundations cracking.
Last week Moynihan sat in his darkened office on Capitol Hill, unhappily contemplating the uncertain future of Social Security. He noted that most Americans have given up on the program. More young people believe in UFOs than in the prospect of receiving a Social Security check when they retire; according to the new NEWSWEEK Poll, 61 percent of adult Americans are not confident that Social Security will be there for them. They have lost faith in perhaps the most successful federal program ever, the bedrock of the New Deal promise of beneficent government. “How did that happen?” Moynihan lamented. The pessimism is rooted partly in a pervasive sourness about Washington and partly in some disturbing demographics. Today there are three workers for every retiree. By the time the 76 million baby boomers begin to retire, there will only be two. Can today’s twentysomethings, Moynihan worries, be expected to cheerfully work harder and longer in order to pay for their parents’ golden years?
So deep is the fatalism about Social Security that the latest commission looking for ways to rescue the system has basically thrown up its hands and decided that government is incapable of fixing itself. Instead, the blue-ribbon panel suggested playing retirement roulette by investing up to half of the taxpayers’ money in the stock market (page 24). At first glance, it’s a popular notion: the NEWSWEEK Poll found that 50 percent favor putting some Social Security revenues into stocks. But Moynihan acidly observed that the commission’s approach is fine–“as long as you believe the market only goes up.” If Social Security “goes private,” Moynihan says, “you’re going to lose it. It won’t be there.” Poor people, who don’t have bank accounts, much less stockbrokers, would be left in what would become essentially a welfare program. Everyone else would take his chances in the market–and if the market crashed, as it well could, they would be out of luck.
But if Moynihan can sometimes make the situation seem hopeless, he also represents the way out. Social Security’s problems are in fact not as grave as generally imagined. Overall, government entitlement programs–from federal pensions to the ever-more-expensive Medicare–are out of control. But Social Security can be fixed relatively painlessly. Actually, Moynihan says, almost everyone in Washington knows what to do. It’s just that, being politicians, they don’t want to talk about it–at least not yet.
The most powerful pol who doesn’t want to discuss Social Security is President Clinton. Moynihan met with Clinton in the Oval Office last week. “You see this?” asked Moynihan, holding up the banner headline announcing the commission’s recommendations in that morning’s New York Times. Moynihan made his argument that “privatizing” Social Security would effectively eliminate the safety net for the elderly. Moynihan won’t reveal the president’s response, except to say that “[Clinton] got it.” Moynihan also says that the president knows what to do, even if he can’t publicly say so without bringing down the wrath of the unions and the much-feared American Association of Retired People (AARP).
Moynihan believes there is a better way. The senator is not a knee-jerk big-government liberal; he opposed Hillary Clinton’s expansive, and doomed, health-care plan. He prefers to look for smaller, more practical answers. For Social Security, Moynihan advocates something that might be called the 1.1 percent solution. Last month a different commission of economic experts found that the consumer price index (CPI) overstates the annual cost-of-living increase by 1.1 percent. Social Security checks (and indeed all government benefits) are tied to the CPI. In other words, retirees have been doing a little better than the true rate of inflation every year. Simply by reducing the CPI by that 1.1 percent a year, the government could save $1 trillion in 12 years. Benefits checks would still rise with the true cost of living, and the Social Security trust fund would be solvent until the middle of the next century.
If this is such a simple fix, why hasn’t it already happened? “Because politicians are scared of each other and the AARP,” says Moynihan. He notes that Hill barons like the chairmen of the House and Senate budget committees, Republicans Pete Domenici and John Kasich, understand that it’s time for reform even though they are publicly quiet about it. More than a year ago, when it was first discovered that the CPI overstated the cost of living, Bob Dole, then the Senate majority leader, endorsed the idea of a 1 percent cut. Dole understood that any cut in Social Security, no matter how small, was politically dangerous. Still, he said, “we can do this if we all join hands.” In an election year, the White House was naturally suspicious, however, and the AARP reiterated that a presidential candidate who dared to touch Social Security could forget about Florida’s 25 electoral votes when the Sunshine State’s elderly population went to the polls. The idea died for the year.
It is likely to be revived by that old political convenience, the presidential commission. Some White House aides predict that Clinton will call for a new nonpartisan panel to give lawmakers electoral cover. Ideally, the next commission would present Congress with a plan that would allow all sides to jump together. It wouldn’t be the first time: in order to save Social Security in 1983, a panel recommended–and Congress approved–significant increases in the payroll tax. This time round, the fix could be an adjustment in the CPI. Other, somewhat more difficult, steps could include raising the taxes on benefits for wealthier recipients and pushing the age of eligibility higher than is now planned. When the current age of 65 was picked in 1935, the average American lived to be 62. Now the average life span is 76 years.
The 1.1 percent solution is not, of course, the answer to all of Washington’s fiscal woes. A minor statistical adjustment would not miraculously balance the budget. To pay for Medicare, Medicaid and Social Security at their present rates of growth, Americans will have to either eliminate the rest of the federal government by the year 2025 or raise taxes by 50 percent–and at that level, the tax burden would consume almost half of the nation’s total economic output. The effect on the economy would be devastating. In Europe, which taxes half its total production to support a generous welfare state, unemployment stands at more than 10 percent, and there is virtually no job creation.
For members of Congress, making the necessary cuts will be painful. Still, there are some small signs that politicians can face reality–and survive. The stories of two GOP representatives, Mark Sanford of South Carolina and Nick Smith of Michigan, are encouraging. Both of them openly advocated cutting Social Security benefits and were re-elected in 1996. “A lot of people thought I was throwing the switch for my own electrocution,” says Sanford. “I knew I wasn’t. I talked to voters. I explained and explained. You’ve got to shell the beaches, prepare the ground, before you land your troops for policy reform.” Sanford, who made more than 1,000 appearances on talk shows and at churches and Rotaries to educate voters on the need to trim Social Security, represents a fairly conservative rural district. Smith in Michigan had to contend with a lot of union voters who are dead set against any cuts in the program. “I took a late TV blitz from the unions near the election,” says Smith, “but it didn’t hurt too much because I’ve really talked about the issue back home.”
It may be that more Americans are getting ready to listen. Gen-Xers are not eager to get stuck with the bill for their parents’ retirement, and, given the threat of generational civil war, the idea of trimming benefits doesn’t seem quite so politically radioactive. According to the NEWSWEEK Poll, 67 percent of adults under 30 are not confident that Social Security will survive long enough to benefit them. But, interestingly, even more baby boomers–78 percent–feel the same. About two out of three Americans say that special interests will stand in the way of necessary reforms. At the moment, the only voices willing to be heard belong to a few obscure congressmen like Sanford and Smith and old mavericks like Moynihan. But with a little leadership from the White House–even in the form of yet another cover-your-rear commission–Social Security can be made secure once again.
In the NEWSWEEK Poll, 67% think there are too many special interests to make the changes needed to keep the Social Security system financially sound.
Throughout Social Security’s history, one thing remains constant: costs keep growing.
GRAPH: Social Security payments as percentage of federal budget
