Politics of Social Security

Author: Melissa Block and Kathleen Schlach

Published: November 1, 2004

MELISSA BLOCK, host:

Social Security is just one of the many issues that will be influenced by tomorrow's election. President Bush says he wants to reform the program; Senator Kerry vows to preserve it. NPR's Kathleen Schalch reports on the candidates' promises on Social Security and how tough it may be to keep them.

KATHLEEN SCHALCH reporting:

Social Security is an income transfer program. It taxes workers and employers and pays retirees. Michael Tanner, a Social Security expert with the Cato Institute, says that's worked so far.

Mr. MICHAEL TANNER (Cato Institute): But we're living longer and having fewer babies. That means there are fewer and fewer workers who have to pay the taxes for each retiree. And in the long run, that's not sustainable.

SCHALCH: Tanner and others have proposed tackling this problem by letting workers keep part of the payroll tax for themselves. President Bush likes that idea.

President GEORGE W. BUSH: I believe younger workers ought to take some of their own money and put it in a personal savings account, a personal savings account that'll earn a greater rate of return than the Social Security trust, a personal savings account they can call their own, an account the government cannot take away!

(Soundbite of cheering and applause)

SCHALCH: The Kerry campaign claims that there's more to the plan than the president is letting on.

(Soundbite of political advertisement)

Unidentified Announcer: The truth is coming out. George Bush has finally admitted that he intends to privatize Social Security in a second term. First, George Bush threatened Social Security with record deficits of over $400 billion. Now Bush has a plan that cuts Social Security benefits by 30 to 45 percent. The real Bush agenda? Cutting Social Security.

SCHALCH: In fact, the president has no immediate plan to cut benefits. The 30-to-45-percent cuts this ad points to could occur more than 50 years from now as part of one privatization option the White House is considering, according to Peter Orszag, a Social Security expert with The Brookings Institution.

Mr. PETER ORSZAG (The Brookings Institution): That reduction applies to younger people today. It does not apply to current retirees.

SCHALCH: And, he says, there is not enough money in the pipeline to fund all the benefits promised to them, in any event. Still, privatization wouldn't come cheap. Michael Tanner of the Cato Institute.

Mr. TANNER: Well, there's no such thing as a free lunch. If we let young workers take some of their money out of the Social Security system to save for themselves, we're going to have to replace that money in order to pay for people who are retired today.

SCHALCH: This could mean coming up with an extra $2 trillion or more. Social Security would need big cash transfusions every year for several decades. The government could borrow the money, but that would mean running up far bigger deficits. Michael Tanner says that's a problem, too.

Mr. TANNER: The fact that we've moved from being in surplus to 450-billion-dollar as far as the eye can see certainly makes any reform of Social Security more difficult. There simply is less money to make the transition into individual accounts, there's less money available to pay benefits. We're boxing ourself into a corner.

SCHALCH: But Senator Kerry may also be promising more than he can deliver. He says he would preserve Social Security without privatizing it. That much is certainly feasible, according to Peter Orszag.

Mr. ORSZAG: Social Security is like a car that has a flat tire. So we need to fix the flat tire; we don't need to get rid of the tire. The deficit in Social Security over the next 75 years is 0.7 percent of Gross Domestic Product. That's about a third of the size of the 2001 and 2003 tax cuts, if they're continued after they're scheduled to expire.

SCHALCH: But politicians will have to do something. Starting around 2019, beneficiaries will draw more money out of the system than workers and their employers put in. Senator Kerry says economic growth and fiscal discipline will help shore up the system. He promises not to cut benefits for seniors who rely on them or raise Social Security taxes or the retirement age. But most economists agree with Bill Gale, co-director of the Tax Policy Center.

Mr. BILL GALE (Co-director, Tax Policy Center): Ultimately, the Social Security solution is a matter of arithmetic, that is you've got to cut benefits or raise taxes or some combination of the two.

SCHALCH: Big changes and stark choices may be coming soon, but politicians won't want to lay out all the details until after the election. Kathleen Schalch, NPR News, Washington.

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