Social Security Reform Tops Domestic Policy Agenda

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WASHINGTON (Talon News) — Although President Bush’s State of the Union Address touched on many issues of both foreign and domestic policy, the legislative focus for the president in 2005 was clearly laid out on Wednesday night. Reforming the Social Security system so that it can sustain an ever-increasing number of retirees emerged as a Bush priority for his second term.

Prior to the president’s address before a joint session of Congress, reporters were briefed on the reasons Bush is tackling the once taboo issue of Social Security reform. A senior administration official said Wednesday that the reason there is a Social Security problem is a “demographic one.”


“We have an aging population,” the official said. “People are living longer. There are, therefore, many more retirees to support than was the case when Social Security was first created. In 1950, you had 16 people putting into the system for each one withdrawing benefits. Today that ratio is down to 3.3 to one. And by the time today’s young workers hit retirement, that ratio is going to be down to two workers supporting each person on Social Security.”

The official emphasized that the problem is “not a distant one,” saying that in 2008 the first baby boomers will begin to retire.

“The first baby boomers will turn 62 in that year, and they’ll start drawing early retirement benefits,” the official explained. “And data shows that the majority of people do take benefits at the earliest opportunity, at the age of 62. What’s going to happen from that point forward is that we’ll see an escalating cost growth in the Social Security system. And the consequence is that by 2018, we are projected to be owing more in annual benefits than the system will be producing in annual revenues.”

Although the initial deficits will be small, the senior administration official said that once they “start to be felt,” the federal government will have to find ways to fund the full benefits which are owed to the retirees.

“One is by borrowing money; one is by raising taxes; one is by cutting spending in other parts of the budget to try to make room,” the official said. “But the point is that from 2018 onward, the program is going to enter a phase of permanent and growing annual deficits, and the federal government is going to have to find additional money in order to make up for that, under current law.”

The official said that by 2027, the annual deficits, “above and beyond all the payroll taxes that the system is collecting,” will be over $200 billion a year. By 2033, the administration official added, the annual deficits will be over $300 billion a year.

At the heart of President Bush’s efforts to reform Social Security are personal savings accounts. These accounts would allow individuals to set aside a portion of their social security taxes into an account which is owned by the individual.

In explaining some of the fundamentals of the accounts, the senior administration official said, “First of these is that there will be no changes in the current system for people who were born before 1950 — these are people who are 55 and older now. If you were born in 1949 or before, you would not be impacted by any of the changes envisioned by the president for Social Security. You would not have any changes to your benefits; you would also not be participating in personal accounts.”

For younger Americans, the official explained that they would have the “voluntary opportunity to participate in personal accounts.”

“If they wished, they could not choose a personal account and they could stay entirely within the current system,” the official said. “The president has said we want to make sure that system is reformed to be fiscally sustainable. Certainly, though, individuals have the option of not taking a personal account and paying the benefits that the traditional system would be able to pay.”

In addressing the notion that President Bush wants to “privatize” Social Security, the official said, “[W]e would establish a structure that is somewhat similar to the thrift savings plan that federal employees, like myself, participate in. This is a centralized administrative entity. It should lay to rest any suggestion that we’re thinking of privatizing the Social Security system.”

The official added, “The thrift savings plan is not a privatized system. It’s actually — it’s publicly administered; it’s administered by the federal government. And it enables participants — like myself and like other federal employees — to realize the advantages of investment gains by having personal accounts that can be invested in diversified and secure funds going forward, and also a number of safety protections that we want to be able to provide to Social Security participants.”

“In the thrift savings plan, individuals are given presently a choice of five funds,” the official said. “There is a stock fund — a large cap stock fund, a small cap stock fund, an international stock fund. There is a corporate bond fund, and there’s also a fund of Treasury bonds. It’s a very small, limited number. They’re all broadly diversified. And the number of choices that individuals face is very limited, but also very simple. You don’t have to be a financial genius to be able to save money in a thrift savings plan. And I’m living proof of that.”

The idea of reforming Social Security through the use of personal savings accounts has met stiff opposition from Democrats in both houses of Congress. Senate Minority Leader Harry Reid (D-NV) said Wednesday night that the Democrats “strongly disagree with the president’s plan to privatize Social Security.”

“There’s a lot we can do to improve Americans’ retirement security, but it’s wrong to replace the guaranteed benefit that Americans have earned with a guaranteed benefit cut of 40 percent or more,” Reid said. “Make no mistake, that’s exactly what President Bush is proposing.”

In his State of the Union address, President Bush said, “If you’ve got children in their 20s, as some of us do, the idea of Social Security collapsing before they retire does not seem like a small matter. And it should not be a small matter to the United States Congress. You and I share a responsibility. We must pass reforms that solve the financial problems of Social Security once and for all.”