Published Monday
October 4, 2004

Bush, Kerry split on Social Security

BY LORI NITSCHKE

WASHINGTON - Polls have shown that more young Americans believe in UFOs than in the likelihood they will see benefits from Social Security.

Yet this year's presidential election shows one phenomenon that may be even more scarce than either UFOs or future benefits: bipartisan agreement on how to address the funding problems projected to hit Social Security as 78 million baby boomers stop working.

Although President Bush and Sen. John Kerry are not far apart on many of the issues facing the country, they have diverging positions on Social Security.

Bush has advocated letting younger workers invest a portion of their Social Security taxes in individual accounts, while promising not to cut benefits for those near retirement or to raise payroll taxes.

Kerry has said no to any privatizing of Social Security. He also has promised not to cut benefits, raise the payroll tax that funds them or raise the retirement age.

Despite the candidates' disagreement on privatizing, Social Security has not been a hot issue on the campaign trail. And some past members of Congress and others who have studied the retirement system say that's too bad.

Where they stand on Social Security
Bush pledges to:	Kerry pledges to:
• Retain benefits for retirees and near-retirees and Social Security taxes (6.2 percent for workers and for employers) at current levels. • Create voluntary personal savings accounts for a portion of worker's Social Security taxes. • Comprehensively overhaul Social Security	• Not add private accounts to Social Security. • Not raise the retirement age,now scheduled to reach 67 by 2027, or cut benefits. • Consider ensuring high-income beneficiaries don't get more in benefits than they have paid in.

"Both the president and Sen. Kerry have chosen not to tell the American people what the facts are and what choices we have," said Bob Kerrey, a former Nebraska governor and U.S. senator who headed a commission on revamping entitlement programs.

"As a consequence," Kerrey said, "regardless of the outcome of the election, the American people are not prepared for a constructive, honest debate."

Kerrey and others say both presidential candidates should be doing more to warn voters about the budgetary problems Social Security will experience as baby boomers retire.

Government estimates vary on how long Social Security will remain fully funded given current tax and benefit levels. But most predict that annual benefit payments will surpass payroll tax revenue by 2018.

The problem is, the number of workers paying into the system for each retiree will continue to drop, especially after the first of the baby boomers begin retiring in 2008.

Today, there are three workers for every retiree. By 2031, the ratio will be 2-to-1, according to the Social Security Administration. It was more than 40-to-1 when Social Security began in 1937.

When outflow exceeds income, the Social Security Administration will have to begin calling in IOUs from the federal treasury.

Because Social Security taxes have been diverted for decades to pay for other government programs, Congress will either have to raise the public debt significantly, cut spending or raise taxes to come up with the funds.

Sometime between 2042 and 2052, when people born between 1975 and 1985 retire, Congress will have fully paid back the IOUs and Social Security will be without enough income to fund full benefits, according to estimates.

"There is no doubt about the fact that the train wreck is about to occur," said Hal Daub, chairman of the Social Security Advisory Board.

"The longer we wait, the fewer the options and the more radical the choices," said Daub, a former U.S. representative for Nebraska and Omaha mayor.

The statistics are even more sobering, Daub said, if the more precarious finances of the Medicare and Medicaid health programs are considered.

For many Republicans, the optimal long-term solution would be to follow such countries as Argentina and Great Britain by giving workers more control over their retirement accounts. Such a program is the only way to ensure the government does not continue to raid Social Security funds, they say.

Daub said the system would be much like those that railroad workers and federal employees have and would offer limited choices at different risk levels.

While Bush has not proposed a specific plan, he has repeatedly endorsed voluntary accounts since his 2000 presidential campaign.

In his push for an "ownership society," Bush argues that voluntary accounts would give "young workers . . . a nest egg of their own that government cannot take away."

A panel Bush appointed early in his term came up with three plans for private accounts. The most often discussed proposal would allow workers to divert 4 percent of their payroll taxes, or up to $1,000 a year, to a private account that then would be invested in vehicles similar to mutual funds.

Democrats say voluntary accounts would take funds from Social Security just as the program is most in need and would result in substantially reduced benefits for future retirees.

"I will never privatize Social Security. Ever. Ever. Ever," candidate Kerry told a Florida audience recently.

While Kerry has said he would work in a bipartisan fashion to address Social Security's solvency, he and most Democrats have not issued concrete proposals.

Kerry has said he would consider reducing benefits for high-income individuals if they receive more than they paid into the system.

Some experts say that many of Social Security's problems could be solved if officials took some steps now.

Among the proposals: raising the income on which Social Security taxes are owed from $87,900 to $120,000; and gradually increasing the retirement age. The retirement age now is set to reach 67 in 2027.

Despite the challenges, investment adviser Dick Kelley tells his clients at RBC Dain Rauscher in Omaha - even young clients who are resigned to Social Security's demise - that he doesn't think the retirement program will disappear.

"But in the meantime," he advises, "you better do some financial planning and get your house in order."

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