In 2014, the first year in which benefits paid out are expected to exceed revenue coming into the Social Security trust fund, payroll taxes are expected to total $585 billion; $593 billion will be due in benefits.
The money in the trust fund, invested in government bonds, will be needed to make up the difference, meaning the government will have the unenviable choice of either spending less on other programs, raising taxes or borrowing, which in turn would push up interest rates and slow the economy.
Will reform of the system prevent this? The outlook is poor for much progress being made this year or next, a presidential election year.
"The odds of that happening have diminished," said Rep. Mark Sanford, R-S.C., who has introduced legislation that would allow workers to set aside up to almost two-thirds of the current 12.4% payroll tax for personal retirement accounts.
Mr. Sanford sees President Clinton's rejection of a plan put forward by Sen. John Breaux, D-La., chairman of a commission to find ways to make the Medicare system solvent, as "a signal that the president wouldn't view entitlement reform as his legacy."
The crisis in the Balkans and new demands on the federal budget surplus also have complicated the situation.
Plus, most of Wall Street and money management companies are focusing more on financial services reform than on Social Security reform.
"The massive concerted large-dollar contributions from financial service companies to support Social Security reform never materialized," said Richard Thau, executive director of Third Millennium of New York, one of the better-funded pro-privatization groups.
The AFL-CIO, meanwhile, has been conducting a grass-roots Social Security education campaign since last summer, training 200 activists and holding meetings across the country to lobby against use of payroll taxes to fund personal accounts, said Gerald Shea, assistant to the president for government affairs for the AFL-CIO in Washington. "This is the largest grass-roots campaign the AFL-CIO has ever done," he told a Social Security symposium sponsored in April by the Business Roundtable.
There are plenty of proposals in Congress form which every side can choose.
Reps. Jim Kolbe, R-Ariz., and Charles Stenholm, D-Texas, reintroduced legislation allowing carve-outs of two percentage points of the payroll tax for individual accounts, and Sens. Breaux and Judd Gregg, D-N.H., are expected to do so soon.
Similar legislation has been introduced in the Senate Finance Committee by ranking minority member Daniel Moynihan, D-N.Y., and Sen. Robert Kerrey, D-Neb.
A plan being readied by Rep. Bill Archer, R-Texas, House Ways and Means Committee chairman, and Rep. Clay Shaw, R-Fla., chairman of the Ways and Means subcommittee on Social Security, would use the surplus to set up personal accounts to offset a portion of guaranteed Social Security benefits. But it has run into snags: internal GOP polls reportedly indicate support is low.
President Clinton's proposal to invest a portion of Social Security funds in the stock market has been introduced by Reps. Earl Pomeroy, D-N.D., and Ed Markey, D-Mass., but Republicans abhor the idea of government ownership of private industry and are unlikely to approve such an idea.
Rep. Jerrold Nadler, D-N.Y., has introduced a bill that would invest the money directly and would make higher incomes subject to the payroll tax, which now applies to the first $72,600 of income. Not yet introduced is the president's proposal for using $38 billion from future surpluses to fund "universal savings accounts" for workers who earn less than $100,000 a year.
Money managers continue to worry about the profitability of administering millions of initially tiny accounts.
Donald Marron, chairman and chief executive officer of PaineWebber Group Inc. in New York, who supports the Breaux-Gregg-Kolbe-Stenholm plan, said the idea of setting up 149 million accounts to funnel some $76 billion a year into financial markets is a daunting task because the accounts would be too small to be cost effective.
"The only logical privatization would be for the money to be put into some kind of index fund," Mr. Marron said. "The index fund business, while a perfectly good business, is not a business we're in particularly, nor are most Wall Street firms."
For its part, the insurance industry is trumpeting the virtues of annuities. Jerry Golden, executive vice president of product management at Equitable Life Assurance in New York, foresees financial companies joining with insurance companies to offer such annuities.
The company that would appear to be best positioned to step into a privatized investment system is Barclays Global Investors of San Francisco, which manages $50 billion of the Thrift Savings Plan for federal employees for a maximum of 0.08%. Some 75% of the $620 billion managed by Barclays is in index funds, making it the world's largest index asset manager.
The proposed Social Security thrift savings plan, which calls for indexing to the Standard & Poor's 500 stock index, "is not all that complicated," said Brad Pope, Barclays U.S. stock index portfolio manager. "(It's) just managing the cash flows of the contributors to the plan."
Federal officials setting up private Social Security accounts would have to decide what benchmark they want accounts indexed against, Mr. Pope said, because the S&P 500 is a "narrow representation of the U.S. equity market."
Meanwhile, the AFL-CIO's Mr. Shea said the union is prepared to spend "easily $10 million" to defeat any diversion of payroll taxes to individual accounts.
The issue "is important to us because it is important directly to the people that we represent whose retirement income situation in general is already pretty shaky," he said at the Business Roundtable conference. "The idea of radically restructuring Social Security entails the risk of eliminating at least some portion of perhaps the only guaranteed retirement benefits that they're likely to receive."