Taking the mess out of Social Security reform

Conflicting values, widely different definitions of a problem and proposed solutions, uncertain outcomes, and the involvement of a large number of players define what political scientist William Dunn calls "a policy mess."

The results of a policy mess usually are public confusion, the advancement of narrow interests, and increased cynicism about the political process.

The Social Security debate fits that definition. But its future is too important to be left to messy outcomes, at least not without a fight for clarity, consensus, and decisions serving the greater good. Here are some guidelines major players in the debate should follow to help clarify the issues for the public.

State your values up front. The players in the debate span a broad ideological spectrum. Libertarians and others committed to shrinking government believe Social Security should be primarily a private retirement program with decisions left to individual investors. Egalitarians want to help correct income inequities. Utilitarians want the most good for the most people.

Others stress aiding the most disadvantaged. Defenders of the traditional program believe it should serve several values, providing universal protection against loss of income because of retirement, disability, or death of a family wage earner.

The debate is more about the values that define a just system, than it is about funding. Players should clearly state the values behind their problem definitions, their proposals, and their visions for society. And players should state whether they'd radically change the program even if no funding problem existed.

Describe the problem accurately. The Social Security Administration annually projects income and expenses for the next 75 years, providing pessimistic, middle, and optimistic scenarios.

In the Social Security trustees' report, released last week, the financial projections are more favorable than in the previous year, because the program is benefitting from a strong economy.

Under the middle scenario, with no changes in the program, Social Security will be able to meet all obligations through 2034. The magnitude of the shortfalls can be described in different ways. If measured over the next 75 years, the program can meet 87 percent of its obligations. Measured from 2034, it can meet about 75 percent of its future obligations.

The shortfall could be eliminated with incremental changes in the annual cost-of-living increases, in coverage for state and local employees outside the program, in payroll taxation, in the age when beneficiaries qualify for full payments, and in the ceiling on earnings taxed. The size of such changes to balance the program would significantly decrease if a substantial portion of projected federal surpluses were used to strengthen the program. Players pressing for radical changes must explain why major changes are needed.

Deal with details. Even modest proposals for change raise important questions. Who would benefit? Who would lose? How would the changes affect spousal benefits and benefits for women? How would they preserve the special protections afforded families and lower-income older persons? What administrative problems and costs for employers would follow a privatization of Social Security? What is the cost of meeting current obligations while starting and operating a new privatized system?

The details will determine fairness, effectiveness, and efficiency. Players must address the impact of the details of their proposals.

Admit the risks. Many proposed changes carry new risks. Proposals to divert a portion of the payroll tax into a system of private IRA-like accounts provide one example. The concept rests on the fact that, on average, private investments in equities earn more than trust fund investments in government bonds. But, because an average is an average, some workers would earn considerably less than the average, while a few earn much more.

High-income, single workers would probably receive higher rates of return. Without the current guarantees, low- and moderate-income workers and most women would not fare well. Older workers and retired persons may not have the luxury of 5 to 10 years to recoup a downturn in the market. Without annual cost-of-living adjustments, retirees would face increased risk of "outliving" their resources.

None of the proposed major privatization plans have been tried and tested in a nation as large as the US. Projections by advocates of such plans are, at best, untested theories, at worst, ideological justifications. The world economy is in a state of flux, raising questions about future economic performance.

Players who would radically change Social Security should be clear about the risks for individual workers and explain why it would be prudent to create another economic uncertainty now.

We favor an incremental approach to fixing Social Security's funding problem. More important, we are interested in promoting a transparent debate, in which values, details, risks, and justifications are clearly stated. The outcome must be a public consensus, not public confusion.

*John M. Cornman, a principal of Consultants on Purpose in Arlington, Va., is former executive director of The Gerontological Society of America. Eric Kingson, professor of social work at the Syracuse University School of Social Work, served as adviser to the 1982 National Commission on Social Security Reform and the 1994 Bipartisan Commission on Retirement and Tax Reform.