Boca Bound

COMMENTARY Social Security

Boca Bound

Apr 18th, 2000 3 min read

Former Senior Research Fellow in Retirement Security and Financial Institutions

David is a former Senior Research Fellow in Retirement Security and Financial Institutions.

If Social Security were as well off financially as some in Washington would have us believe, it could retire tomorrow and buy a beach house in Boca.

Consider the reaction to the latest report from the financial trustees of the Social Security system. Opponents of Social Security reform are hailing the document -- which shows the program escaping deficits for one additional year, until 2015 -- as proof that a strong economy has put the retirement program well on its way to fiscal recovery. But the notion that strong economic growth has cured Social Security is fantasy.

On the contrary, the strong economy has actually added to the program's woes, since higher wages lead not only to higher payroll-tax revenues but to higher benefit payments. That's why the report also showed Social Security's long-term deficits rising by $1.8 trillion to the astounding sum of $20.6 trillion -- more than five times the current national debt. In short, today's gains will become our grandchildren's pain, as they have to deal with even higher deficits.

The Social Security Administration -- which is hardly an objective observer but a passionate opponent of reform -- proudly proclaimed the improvement in the insolvency date in a news release. The information on the higher deficits, by contrast, was hidden in some of the dozens of mind-numbing tables that cram the 223-page report. You not only had to find the needle in the haystack, you had to find the haystack in Nebraska.

The disinformation campaign on Social Security takes other forms as well. For example, starting last October the Social Security Administration began sending all Americans age 25 and over a document called "Your Social Security Statement." While these statements have some useful (although not entirely accurate) information about an individual's past earnings and expected retirement benefits, that's only part of the story. Left out is clear information on how an individual's future benefits could be diminished by the program's obvious financial problems, on the fraudulent nature of the Social Security trust fund, or on the higher returns available from investing retirement money other ways.

For one brief shining moment last year Washington actually told the truth about Social Security. In a technical document, the president's Office of Management and Budget let the cat out of the bag regarding the Social Security trust fund, saying, "These balances are available to finance future benefit payments ... only in a bookkeeping sense. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures." This year, when the same document came out, the offending material was gone. Washington sealed the cat back in the bag and threw it in the Potomac river.

Some members of Congress want Americans to have better information about how Social Security really works. Rep. John Sununu, R-Mass., and Sen. Rick Santorum, R-Pa., have introduced the "Social Security Right to Know Act," which would guarantee that all Americans get the information they need to make informed decisions about their own retirement security and Social Security's future. A similar Senate bill, the "Straight Talk on Social Security Act," has been introduced by Sen. John McCain, R-Ariz.

This type of legislation is extremely important. While neither the Sununu-Santorum bill nor the McCain legislation makes any changes to the structure of Social Security, both would cut through the veil of obfuscation. For decades, technocrats have hidden the truth about Social Security behind technical phrases and needlessly complex formulas. This would end.

Instead of discussions about "bend points" and "unfunded liabilities," workers would know the true state of Social Security's finances. Instead of policy arguments only graduate-level economists can understand, all Americans could take part in a debate that will have a real effect on their future and that of their children and grandchildren.

Opponents of this idea argue that it would only confuse people, who should simply trust Washington to do the right thing when it comes to their retirement security. This insults the intelligence of the American people. At a time when the business section is more popular than the sports page at many breakfast tables, there's little risk of confusion by an increasingly sophisticated public.

And that's what has paternalistic Washington concerned -- the possibility that average Americans might be able to manage their retirement funds better on their own. And retire to Boca.

David Johnis a senior policy analyst at The Heritage Foundation, a Washington-based public policy institute.

Distributed nationally by Knight-Ridder Tribune News Service.