SAVE SOCIAL SECURITY FIRST
Call it the politics of plenty. After years of cut, cut, cut, Washington is now back to give, give, give. The Congressional Budget Office just raised its estimate of the surplus to $1.61 trillion over the next 10 years. This bonus is tempting lawmakers to shower their contributors and constituents with all kinds of goodies, especially since there's a congressional election this fall. There is, after all, plenty to go around. Right?
Not exactly. Returning "excess" dollars to taxpayers is a great idea. But the hard truth is that all the surplus is being generated by Social Security itself. Over the next 10 years, the Social Security system's revenues will outrun its outlays by $1.62 trillion. That means that the rest of the government will actually run about a $10 billion deficit over the same period.
There is something obscene about politicians running around frittering away Social Security money when the system itself faces a serious long-term deficit. Every penny of that $1.62 trillion of surplus--and a lot more--will flow out as benefits in the years ahead when baby boomers start retiring. Saving Social Security for everyone is a lot more important than snipping taxes here and there for a handful of key political constituencies, Democratic or Republican. Poll after poll shows that the vast majority of Americans believe that a solvent retirement fund is far more important than another tax cut they can spend.
Washington should listen. Inadequate funding for Social Security remains one of the last great socioeconomic problems (along with health care and education) afflicting the country. Despite pressure to deliver tax cuts to make some voters happy before the Nov. 3 election, Congress should hold off on spending the new surplus. Indeed, a new bipartisan commission on the future of Social Security, such as the one headed by Alan Greenspan in the early 1980s, is in order.
The good news is that the budget surplus projected by the CBO may be way too small. The CBO bases its projection of a $1.61 trillion surplus on an assumption that the economy will grow at a conservative rate of 2.16% over the next 10 years. What if the economy grows faster? Given the shift to a technology-driven, globalized economy, odds are that the U.S. actually will grow at a 2.5% to 3% rate over the next decade. That should generate an extra $1 trillion or more. Yet even that amount, thrown into Social Security coffers, will barely dent the retirement deficit that looms when boomers start leaving the workforce.
Washington should be bolstering Social Security now for that day of reckoning. It can do so in several ways. For example, it can use the surplus to establish individual Social Security accounts for investing in stocks and bonds. It also can invest the surplus itself. The real national debate should be over these options, not how to squander the money by playing politics.