Social Security's future is no cause for alarm

There's some welcome news already from this presidential campaign.

It's beginning to dawn on the press and most of the candidates that the Social Security system is not in crisis. That means it could be a losing issue for the candidate or party that proposes radical fixes for what's not broken. Ask George W. Bush.

The most authoritative word on the outlook for the nation's popular 70-year-old defined-benefit pension and insurance system came from former Federal Reserve Chairman Alan Greenspan in September on "Meet the Press," when he told a surprised interviewer that "Social Security is not a big crisis." It's a view he has held for some time, but is largely ignored.

As he explained, "We're approximately 2 percentage points of payroll short over the very long run. It's a significant closing of the gap, but it's doable, and doable in any number of ways."

Greenspan knew what he was talking about, and not only from his tenure at the Fed. In 1983 he headed the bipartisan commission, appointed by President Ronald Reagan, that produced changes to save the Social Security system when it really was in trouble.

Among other changes, Social Security brought in federal workers, including members of Congress; the retirement age was gradually increased, and payroll taxes were raised to build a surplus, now at $2 trillion, that will last another 40 years. This is a matter of arithmetic and biology that continues to escape some pundits.

Nancy Altman, who was Greenspan's assistant in 1982 and author of the book "The Battle for Social Security: From FDR's Vision to Bush's Gamble," has written that fixing the system's projected shortfall beyond 2041 is one of the easier problems facing government and that benefit cuts are unnecessary.

In fact, the Social Security trustees reported earlier this year that the "financial adequacy of the program for the next 75 years could be restored if changes were made equivalent to increasing the Social Security payroll tax immediately from its current level of 12.4 percent (split between employees and employers) to 14.35 percent," which would be a 1.95 percent rise, divided between worker and employer.

But even that may not be necessary. If economic growth continues at the same pace as the past 40 years, the trustees said, there will be no shortfall and no need for a tax increase.

Greenspan's top adviser in helping to study the matter, former Social Security Commissioner Robert Ball, has offered other fixes to keep the system solvent for 75 years, without raising new taxes or cutting benefits. And if you want to find your own solutions, play the Social Security Game at the Web site of the American Academy of Actuaries, actuary.org/socsec.asp.

Partly because of what Greenspan recently said, most of the Democratic candidates haven't cried crisis. Yet several have criticized Sen. Hillary Clinton because she insists Social Security is not in imminent danger. "If we put our fiscal house in order, we can solve the Social Security problem," Clinton recently said is the only Democrat who has claimed Social Security is facing a "crisis" and he has suggested addressing it by raising the limit on which payroll taxes must be paid, above the present limit of $97,500, rising to $102,000 in 2008. Some Democrats have endorsed variations of that proposal, and it's not a bad idea, for it would erase the inequity in which most workers pay 6.2 percent of income, while the rich pay much less.

But Obama has taken heat from Social Security advocates for using the word "crisis" and providing ammunition to Republicans who have predicted the program was heading for bankruptcy unless it was privatized or benefits were cut. Without mentioning the 1983 fixes, Obama claimed the system needed to be fixed soon in order to pay benefits to the wave of baby boomers.

The New York Times' economics columnist, Paul Krugman, among others, reminded Obama that the changes of 1983 anticipated the boomer wave, and challenged his use of the word crisis.

"Obama is no enemy of Social Security," said economist Mark Weisbrot, writing for Alternet. "But he is misinformed." And he explained in detail the effects of the 1983 changes that anticipated the need for the system to pay benefits to the boomers. Said Weisbrot, "There is not the least bit of urgency regarding Social Security... Hopefully, this non-issue will soon disappear from the presidential campaign."

Veteran economics reporter John M. Berry, writing for Bloomberg News, said the trouble, as Clinton notes, is that the Bush administration borrows from Social Security's surplus to pay other costs, money that must be repaid at some point from the general fund. Said Berry, "There has been no effort to hold down debt to make room for future borrowing to pay Social Security benefits.

"Fortunately," he concluded, "there is no Social Security crisis. The long-term unfunded liability is small enough that it could be dealt with using relatively small changes in benefits and taxes." Even The Wall Street Journal, known for its conservative editorial page, has agreed that Social Security is a non-issue.

The one Republican candidate who suggests Social Security is facing a crisis is former senator and actor Fred Thompson, who proposes cutting future benefits and partly privatizing the program.

There is a dimension to the Social Security problem that should become a campaign issue, though. It's being lumped together with Medicare as an "entitlement" monster that's eating up the federal budget. As we've pointed out, Social Security, which is self-financed and financially sound, is different from Medicare, which is financed largely from general revenues and is indeed facing trouble. But that's another column.

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