Could it be that all of the talk in recent months about fixing the "problems" with the private pension system is a conjuror's trick to distract the public from noticing the very real problems with the Social Security system?
As Dorcas R. Hardy, U.S. Commissioner of Social Security from 1986 to 1989, wrote in the Winter 1993 issue of the Journal of the Committee on Developing American Capitalism, unless the Social Security system is revised, "this retirement and disability system will be bankrupt by, or before, the year 2015."
"Over 50 million Americans will be affected directly and many millions more indirectly," Ms. Hardy wrote. "Today's multibillion dollar bail-out of the savings and loan industry will be trivial compared to the consequences of Social Security's looming collapse."
Ms. Hardy is not the first to issue such a warning, only the latest.
But Congress and the president avert their eyes because tampering with Social Security is politically dangerous. They would prefer to wait until it is someone else's problem.
Unfortunately, delaying until the crisis is undeniable means the cost of correcting the system will be even greater than it is now.
Part of the problem is that government propaganda continues to mislead taxpayers about how Social Security works and what backs its benefits. Many employees, too many, still believe the Social Security taxes deducted from their paychecks are saved in an account that will pay their Social Security benefits when they retire.
Of course, those dollars are not saved. They are "invested" in Treasury securities (really IOUs from the Treasury to the Social Security Trust Fund, i.e. to itself) and then spent to finance current government operations.
How will those IOUs and the "interest" they are accruing be redeemed in the future? If the federal government were ever to run surpluses again, the excess tax revenue could be used to redeem the IOUs.
But surpluses are most unlikely. The only ways to redeem these IOUs are by reducing Social Security benefits, increasing taxes, or some combination of the two.
The easiest way to reduce benefits is to further postpone the normal retirement age, already slated to be pushed back to 67 over several years beginning in 2003. And the cost-of-living adjustment for Social Security benefits could be reduced.
Congress already has increased the portion of the Social Security benefit subject to income taxes, so it is likely that before long, higher-income retirees will see all of their Social Security benefits subject to income taxes.
The best way to address the looming crisis, however, would be to begin phasing out the Social Security system by gradually reducing the Social Security tax and mandating employees put the amount of the tax reduction into an untouchable retirement account.
The assets in these accounts would be invested in the productive wealth of the country - i.e., in publicly traded stocks and bonds through mutual funds.
In effect, the United States could take a lesson from countries such as Chile that have replaced their bankrupted government-controlled social security systems with privatized ones.
It could phase out what has been called a "giant intergenerational chain letter."
Chain letters always break down.
