These ads are simply wrong on the facts. None of the Social Security reform plans debated in Washington, including the one President Bush proposed last year, would cut or change benefits for anyone retired today or nearing retirement. These seniors will continue to receive every penny in Social Security benefits promised to them. To say otherwise is quite simply a lie.
Even younger workers would not really see their benefits cut by the 50 percent claimed in the ad. Younger workers would be given the choice of voluntarily giving up some of their traditional Social Security benefits in exchange for being allowed to invest a portion of their Social Security taxes privately, through personal accounts. Workers who choose this option will lose some of their traditional Social Security benefits, which will be replaced by funds accumulated in their accounts.
Several studies estimate these workers will end up with more retirement funds than Social Security will be able to pay. More importantly, their funds will belong to them — as real, inheritable wealth no politician could take away. But if young workers don’t trust private investment, they aren’t required to take this option. As their critics never note, all the personal account plans being discussed in Washington are completely voluntary.
Perhaps even more disturbing than the actual falsehoods is how the ads ignore Social Security’s looming financial crisis. Social Security will begin running a deficit in just 11 years. Of course, in theory, the Social Security Trust Fund will pay benefits until 2040. That’s not much comfort to today’s 33-year olds, who will face an automatic 26 percent cut in benefits unless the program is reformed before they retire. But even that figure is misleading, because the Trust Fund contains no actual assets. The government bonds it holds are simply a form of IOU, a measure of how much money the government owes the system. It says nothing about where the government will get the money to pay back those IOUs.
Even if Congress can find a way to redeem the bonds, the Trust Fund surplus will be completely exhausted by 2040. Then, Social Security will have to rely solely on revenue from the payroll tax — and that revenue will not be sufficient to pay all promised benefits. Overall, the system’s unfunded liabilities — the amount it has promised beyond what it can actually pay — now total $15.3 trillion. Yes, that’s trillion with a “T.” Setting aside some technical changes in how future obligations are calculated, that’s $550 billion worse than last year. By failing to act last year, Congress handed our children and grandchildren a bill for another $550 billion.
Moreover, Social Security taxes are already so high, relative to benefits, that Social Security has simply become a bad deal for younger workers, providing a low, below-market rate-of-return. In fact, many young workers will end up paying more in taxes than they receive in benefits. They will actually lose money.
But the most important problem with the current Social Security system is that workers don’t own their benefits: Workers totally depend on the good will of 535 politicians to determine what they receive in retirement. Any politician, regardless of party, with the courage to address these issues should be celebrated, not vilified.
It is perfectly reasonable to disagree with various Social Security reform proposals, including personal accounts. But Social Security is too important to be left to demagoguery. At a minimum, we should expect the truth about the choices we face.
