Social Security Realism

As analysts pore over President Clinton's proposed budget, they find parts of it don't wash.

That's especially the case with its "framework" for "saving" Social Security. Most observers agree the retirement and disability program needs serious reform - the disagreement is over how to do it. But instead of reform, the president has proposed a crowd-pleasing scheme that would do nothing to head off the problem of how to keep the federal retirement program on an even keel as baby boomers start to retire.

On paper, the president proposes devoting 62 percent of the surplus to shoring up Social Security. But the details are a sleight-of-hand: First, he devotes to the Social Security trust fund payroll taxes that already belong to Social Security. Then he would lend this money to the federal government for other uses. The bottom line is that instead of preserving the money for Social Security, he actually ends up spending about $142 billion of it on general government programs.

Sen. Pete Domenici (R) of New Mexico, the Senate Budget Committee chairman, has a better approach. Senator Domenici and others will soon introduce a bill to guarantee that all payroll taxes collected for Social Security be used only for that program unless a supermajority votes otherwise. No more lending it out to the rest of the government every year. Money that is not spent would be used to pay down the national debt, much of which is owed to Social Security, anyway.

The president also suggests using part of the surplus to create individual retirement accounts. The idea of accounts chosen by individual workers is sound, but the money for them should come from a small percentage of their payroll taxes, not from the surplus (which would either rob Social Security or eventually deplete other budget programs). In any event, the president hasn't included any funding for the accounts.

The administration's proposal that part of the Social Security trust fund be invested in the stock market and administered by a government-appointed board runs several risks. A better return on investment, one that only the market can provide, is needed for future retirees to enjoy benefits anywhere near current levels. The money, though, should come from those personal accounts, not the trust fund. Investment options should be strictly regulated (as they are for federal-employee accounts) so that people don't lose part of their retirement savings in gold-mine schemes.

But the idea of a government board deciding which companies to invest in simply won't wash. Republicans and many Democrats will reject it as too fraught with potential for government interference in the free market and special-interest manipulation. And a one-size-fits-all investment policy would not differentiate between the higher-risk growth investments of young savers and the safety-focused needs of savers nearing retirement.

The time to reform Social Security is now - certainly within the next six months, before the politics of the presidential race intervene. But it will only happen if the president throws his weight behind a serious reform proposal. Those who oppose any reform of the program are already demagoguing the issue.

AFL-CIO President John Sweeney labels any reform that includes individual accounts an attempt to "scrap" Social Security.

This ignores the intent of both the president and most Hill Republicans to keep the social-safety-net aspect of Social Security firmly in place. None of the principals in the debate has come anywhere near suggesting scrapping the program. The aim is to save it without sacrificing benefits in the coming age of vastly more recipients drawing benefits in a period of actuarily greater life expectancy.

Clinton has a choice between the loyalty of his party's left and his legacy as a reformer. To meet the needs of his own boomer generation he should choose the latter.