Put Security Back Into Social Security

Perhaps it is too much to hope, but the past election may be the last election in which campaign rhetoric pretends that the bad guys will change Medicare and Social Security and the good guys won’t.

Change is necessary. Responsible politicians will start working to achieve it. Now.

Medicare will go into the red four years from now and Social Security goes into the red 16 years from now.

Medicare’s collapse is so near that inaction is no longer an option.

But the date for Social Security’s collapse may seem distant enough to allow a few more years of delay and demagoguery.

That would be the worst mistake this country could make.

It’s easier to accumulate a retirement nest egg if you start saving a long time before you’ll need it.

One way or another, a solution to Social Security’s problems will have to involve a gradual savings plan.

Right now, Social Security is not in fact a savings plan. It’s an income transfer program. Most revenue from today’s Social Security tax goes straight to today’s pensioners. The rest goes to a deceptively named “trust fund,” from which it disappears to finance deficit spending in other federal programs.

As a result, future Social Security benefits will depend entirely on future tax collections.

But raising the Social Security/Medicare tax is not a viable solution. This tax already costs employer and employee a whopping 15.3 percent of salary and does not apply to earnings beyond $60,000 a year. A tax this regressive should not be raised. To make matters worse, as baby boomers retire there won’t be enough remaining wage-earners to pay their benefits without truly massive and therefore unacceptable tax increases.

Reformers can trim Social Security’s cost by raising the retirement age and reducing the size of annual benefit increases to match inflation more accurately. But that is not a complete solution, and it won’t be a popular one.

The most constructive solution, while there’s still time to phase it in, is to place part of each worker’s Social Security tax into a real, owner-directed investment account. That would be better for the public interest than using the Social Security tax to finance (and conceal) deficit spending. Money placed in these accounts actually would be there at retirement, multiplied by the miracle of compound interest - no small thing, given the durability of the U.S. economy and the fact that the stock market has produced an average return of 10 percent for 70 years. And yes, Americans can be trusted to guide their investment accounts, as they already do with IRAs.

An infusion of real savings would be good for investment capital and therefore good for the nation’s economy. And it would be better for the next century’s retirees than today’s bankrupt alliance of deficit spending with a pension plan that simply cannot be sustained.

, DataTimes The following fields overflowed: CREDIT = John Webster/For the editorial board