Social Security: The Reality of the Rhetoric

By Tim Penny

Social Security reform is doomed in the eyes of some. But it is essential that Americans not let this attitude prevail. An open, honest dialogue about reform must continue, and it can begin at the local level. Last week, I met with Richmond financial advisors as part of a national speaking tour meant to offer the realities behind the rhetoric used to debunk reform opportunities such as private retirement accounts.

Problems with Social Security are often depicted as exaggerations, and many say faster economic growth will address the problems. In reality, Social Security Administration actuaries, the Congressional Budget Office, the General Accounting Office and other non-partisan analysts have all warned that the system is on an unsustainable financial course. It’s true, faster economic growth will increase Social Security trust fund balances in the near term, but long-term liabilities will also increase because benefits generally rise along with economic growth.

Restoring "solvency" to the system is viewed as the ultimate goal, and often modest tax and benefits changes are highlighted as the means to that end. It is possible such a plan could restore solvency to the extent that "solvency" means the Social Security trust fund contains IOUs that can be redeemed for cash. The problem is, no cash reserves are set aside to pay the IOUs. Taxes and benefits changes might restore solvency in an accounting sense only. They will not make the system permanently sustainable without real funding to pay the IOUs.

Opponents argue that putting surplus payroll taxes into personal retirement accounts "robs" the system. In fact, personal accounts save Social Security surpluses for retirement benefits, keeping money in the system, rather than spending the surpluses on other programs as elected officials do now. As a result, personal accounts will put Social Security on a permanently sustainable track. Though individual accounts don’t specify what changes need to be made to put Social Security’s finances in order, they do ensure that any changes made to Social Security’s finances will strengthen the system.

Members of Congress would be more comfortable making tough choices to restore solvency if they were confident, and could assure constituents, that those choices would actually benefit Social Security.

It’s been mentioned that "privatization" will force benefits cuts for everyone. In fact, voluntary personal retirement accounts do not require cuts in traditional benefits for those who choose not to participate. Workers who do participate will only see a reduction in traditional benefits proportional to their personal account contribution. That’s only fair.

Opponents of individual accounts also argue that the accounts will result in massive debt increases. Private accounts would increase near-term borrowing from the public for one reason alone: personal accounts prevent the rest of the federal budget from borrowing from Social Security.

No matter what their reform plans, Members of Congress will be faced with tough choices in order to eliminate the significant deficit facing Social Security. And yes, that could mean reductions in promised traditional benefits. That’s why we need to consider all of the reform options available, including personal retirement accounts. Personal accounts would effectively pay existing Social Security obligations and reduce the system’s long-term liabilities, again making Social Security reliable for retiring workers.

Mr. Penny is former Congressman from Minnesota and served as a member of the President's Commission to Strengthen Social Security.