Social Security should be privatized not only for the advantages of investing the contributions but also to provide better scrutiny and oversight of the liabilities.
The lack of use of commonly accepted financial measures is one reason debate on the necessity of Social Security reform has been so protracted.
Stephen C. Goss, supervisory actuary in the Social Security Administration, speaking at conference on Social Security sponsored by the Pension Research Council at the Wharton School of the University of Pennsylvania, Philadelphia, noted, "It's not exactly defined what the financial status of the system is and how it's to be measured."
His remark illustrates the problem of trying to change a government program. Social Security has become so convoluted that intelligent people can have radically different views of it, even though they are looking at the same reports. That shouldn't be the lasting monument of Franklin D. Roosevelt, who wanted to assist the retired but whose effort, however well-intentioned, was misguided and now confounds attempts at reform some 60 years after it was established.
Mr. Goss and other speakers at the conference noted Social Security is unmistakably clear about its obligations. There is no contract with its beneficiaries, despite the rhetoric from politicians and senior-citizen groups that support the status quo.
"Congress has the ability to change the rules of the game as we go along," he noted. "It's not a contractual obligation. It can raise taxes or cut benefits." Congress has made many changes in the program over the years. The most prominent is a gradual raising in the retirement age for recipients to 67 from 65.
Social Security is a defined benefit plan without the pre-funding required of private plan sponsors. Social Security operates, of course, on a pay-as-you-go basis. "Private plans," Mr. Goss noted, "can't by law operate this way and shouldn't."
This funding method is part of the source of Social Security's problems, although many still oppose scrapping it in favor of some kind of private mandatory program.
Robert Myers, former chief actuary of Social Security, who continues to support the pay-as-you-go method, addressed the conference, saying it isn't clear the program has problems that can't be solved without any major reform.
Marshall E. Blume, professor of finance at the Wharton School, contends that financing future Social Security benefits under the present program will cost only an additional 0.4% of gross domestic product a year, an amount he considers a manageable burden.
Edith Fierst, an attorney with Fierst & Moss, a Washington law firm specializing in retirement issues, contends Social Security benefits "are as certain as death and taxes." To help with financing the program, she suggests taxing all Social Security benefits, instead of applying the current income threshold. "The progressive nature of the income tax protects the poor," she said. Also, she would gradually raise the retirement age for Social Security to 68.
Perceptions of the program like that of Ms. Fierst - a benefit that's certain, even though qualifications make it harder to receive - reveal the problems in changing the program. Social Security shows how dangerous government can be, because of the difficulty of getting rid of a bad program. Congress ought to privatize it soon.