Above All Else, Social Security Will Dominate
Though Congress will file hundreds, even thousands, of bills this year it's clear that only a handful of them will garner the full attention of the membership, both in the House and Senate. Social Security reform, once known as the "third rail," for its ability to effectively electrocute anyone who suggested tampering with this vital program for millions of American seniors, is the major one.
This controversial issue is not expected to be settled in this Congress, or anytime soon. Still every constituency is trying to carve out some kind of role because the train has left the station and everyone wants to be aboard when it reaches its final destination. That means that credit unions will want to position themselves to participate in any kind of funding scheme, such as private accounts, as fiduciaries or trusts or authorized advisors/managers of any alternative to the current Social Security accounts that is eventually passed by Congress.
The reform proposal is being fueled by one of the most powerful lobbies in Washington, the investment community. These are the entities that will profit the most from a switch to a voluntary system allowing individuals to invest in personal accounts, instead of Social Security. In fact, the latest proposal being considered by Congress was written by a top executive for Boston-based Fidelity Investments, the biggest mutual fund company in the world, which stands to get a huge chunk of this new pool of investment funds. Other players in the investment community have also lined up squarely on the side of reform. We're talking about trillions, of dollars-that's trillions with a "T"-in play here.
While advocates and opponents argue the necessity of reform, it's clear that something will be done in the near future because this issue has been brewing for many years. This is certain to become a major campaign issue in elections to come during this decade because of its importance to one of the biggest voting blocs in the country, the tens of millions of senior citizens.
One of the reasons is the need for reform has not been proven.
First, no one has proven impending insolvency of the system. The Bush Administration says that actuarial computations show that the system could run out of money in 50 years. Though that may be true, who knows what the financial system, and more generally, the world, will look like that far into the future. Who could have predicted 50 years ago what the financial system would look like today, or the world, in general, with people walking down the street talking to each other on cell phones or spending their days in front of computers, not to mention the variety of other technologies we now take for granted.
If the Administration had felt a burning need to put Social Security on firm ground for the future the easiest solution would have been to take the $1 trillion in projected budget surpluses they inherited from their predecessors, the Clinton Administration, and apply it to the so-called Social Security Trust Fund. This would have added another 30 to 40 years to the solvency ratio of the program. Instead, those budget surpluses have disappeared (some say "squandered"), creating huge budget deficits, instead, and adding to the long-term threat for Social Security, as well as many other vital government programs.
But the simplest solution to extend the solvency of the Social Security Trust Fund would be to do two things. First, extend the age of eligibility gradually from the current 65 years old to 70 years old, as people continue to work longer and contribute to the fund longer. And second, increase the current cap on income taxable from the current $90,000. The actuaries say this would add another 30 to 50 years of solvency for the fund. After that, who knows what the world will look like in 80 or 90 years from now?
I do know the idea that people should have the option of investing some of their funds that now go to the government and with a guaranteed return in the stock market is a risky proposition, at best. Advocates like to argue that over the past seven decades, the stock market has provided a greater return than any other investment source. But do people have such short memories that they forget the 1990s when the crash of the dot.com stocks wiped out the savings of millions of people? Is the average person savvy enough to beat the guaranteed returns offered under Social Security?
There is one major issue overlooked in all of this argument. That is that Social Security was never meant to be a retirement pension, but a supplement to an individual's retirement savings. This little fact has yet to become part of the debate. To what extent it enters the debate remains to be seen.
CU Journal Washington Bureau Chief Ed Roberts can be contacted by e-mail at eroberts