Securing Social Security

Social Security has been a stabilizing factor in American society for more than half a century. People bank on it. But the system is viewed by many as heading toward bankruptcy. Calls for an overhaul are mounting, and the report of a presidential commission on Social Security, out this week, could mark the start of discussions and hearings leading toward actual retooling in the next few years.

But before the legislative mechanics begin tinkering, some points of clarification are needed. Just how severe a crisis is Social Security really facing?

With no changes, the national pension system is expected to exhaust its now-hefty surplus by about 2030, when the full brunt of baby-boom retirements is felt. Revenues would then cover only about three-quarters of benefit obligations. Nearly everyone agrees that adjustments are required to prepare for that eventuality.

But the proposed nature of those adjustments ranges from minor to massive. At one end of the scale are those calling for full privatization of the system, with the revenue from Social Security payroll taxes being put in the hands of individuals for investment. On the other end are those who see the system maintaining itself for more than three decades without change, and much beyond that with only small fixes, including small increases in the payroll tax (on the order of slightly more than 1 percent for both employee and employer).

The commission's recommendations fell between these extremes, with members splitting three ways, according to how much of the system they felt should be converted to private investment. Even the commissioners, who favored preserving overall government management of Social Security showed some willingness to explore the option of investing a portion of the system's surplus funds in private securities rather than in federal bonds, as at present. The prospect of reaping greater returns from Social Security's billions has general appeal.

That appeal extends, most notably, to Wall Street, where brokers are giddy over the possibilities. The excitement on Wall Street, however, is counterbalanced by extreme caution in other quarters. There are no risk-free investments on the stock market, and the original point of Social Security was to secure the future for older Americans. Though the market has been tending steadily upward of late, downturns are likely.

Individuals with market know-how would probably do fine investing their own Social Security benefits. Many others would be at sea. A heavily privatized system could become another factor widening the gap between rich and poor in America.

Fairer, and probably more beneficial to the nation, would be a system that maintained the current federal guarantee of a reasonably high retirement benefit, while taking some advantage of the higher returns possible from private investment.

This hybrid will be arrived at only after extensive debate in and out of Congress. Current beneficiaries won't be affected by the decisions that arise from this debate. But their children and grandchildren will be. All generations have a stake in prompt, responsible action on Social Security.