Pimp my ride--not my retirement

Author: Jess Wilhelm

Published: May 2, 2005

The issue of Social Security is complicated. The issue of reforming Social Security is utterly convoluted. So, let's apply the simple analogy of a car in need of repairs. Your dependable vehicle (Social Security) has been running efficiently for 70,000 miles now (70 years) with only minor repairs. However, your mechanic (President Bush) insists that the car will break down entirely in another 36,000 miles (in 2041). The problem, he claims, will be a build-up in residue that can clog the engine (projected Social Security shortfall). His solution -rims. That's right -he proposes to add a personalization feature, rims (private accounts), that would do nothing to extend the life of your vehicle.

Your mechanic's motives are quite clear. His friends (Wall Street), who helped to get him his job, just happen to specialize in "rims." Besides, he thinks they're cool. Over your protestations, he applies one argument after another to convince you of the need to add rims. When you argue that rims have nothing to do with the problem, he warns of impending disaster and admonishes you for not addressing the issue before it's too late. A second opinion shows that the real problem can be solved by using more expensive premium gasoline (increasing Social Security revenue) and/or by driving the vehicle less (cutting benefits).

While crude, the analogy provides an introduction to the public debate so far. If you add in to the story a media establishment that doesn't know a thing about automobile maintenance, it would be just about a complete account of the president's Social Security campaign -until now. At a press conference Thursday, President Bush recommended a program of benefit cuts to address the issue of Social Security's solvency, as reported by The Washington Post. The plan he supports is similar to that proposed by Robert Pozen, who served on the president's Commission to Strengthen Social Security.

According to the Center for Economic and Policy Research, the Pozen plan would maintain the current level of promised benefits for low-income workers earning less than $25,000. High-income workers earning more than $90,000 would have their future benefits linked to inflation, not wages, as the system operates today. Middle-income workers would have benefits that are some fraction of the difference between wages and inflation. The problem with this policy is simple -wages have historically risen faster than inflation. The result for our generation under Pozen's plan would be a 16 percent cut in guaranteed benefits for average earners making $36,507 per year and a 25 percent cut for workers making $58,411. Our children will fare even worse.

Despite its sharp effect on the middle class, Pozen's proposal only makes up for three-quarters of the projected shortfall. Other solutions, like raising the payroll tax that funds Social Security from 12.4 percent to 14.32 percent could solve the solvency problem for the next 75 years, according to The New York Times. But the payroll tax hurts working families; 74 percent of families pay more to the social security payroll taxes than income taxes, according to a 2003 report by the nonpartisan Tax Policy Center. However, 6 percent of workers pay less than their 12.4 percent share because the payroll tax has a $90,000 cap. Removing the cap and taxing all earners at a flat rate would cover 116 percent of the projected shortfall over the next 75 years, the Times reports. Additionally, the cost of making the president's tax cuts permanent will be three times the shortfall projected by the Social Security trustees over the next 75 years, according to the progressive Center for American Progress. By reforming taxes rather than eliminating them, we could handily solve the problem without benefit cuts for the wealthy or middle class.

However, the president is set on installing a set of rims. His proposal will likely allow workers to contribute 4 percent of their earnings to private accounts, capping at $1,000 to $1,300. These contributions to private accounts will be loans from the trust fund with at least 2 percent interest above inflation. If a person's investments do not perform well enough to pay investment fees and return the interest at retirement, they will lose money, according to the Center for American Progress.

For decades, Social Security has been a safety net for retirees, the disabled and families of the deceased. However we choose to solve the problem, we must assure that the system is there for all Americans whenever they need it. Whether in a car or Social Secuirty, what ultimately matters is dependability, not style.