Increase the payroll tax, with the additional funds going into individual accounts. Investments would be managed by an independent board.
Lacking a consensus, the 13-member Advisory Council on Social Security, appointed by Health and Human Services Secretary Donna Shalala, has been unable to do more than present alternative plans for further discussion - and there is sure to be plenty of that. Congress should proceed cautiously in considering such drastic changes.
The point of the recommendations was to increase the investment return on Social Security taxes and thereby help to rescue the system from bankruptcy, now projected to occur by 2029. Under current law, Social Security revenues not needed for benefits immediately are invested solely in U.S. government securities. The panel agreed that the system could obtain a larger return on its money by investing some of it in stocks.
But how? The alternatives endorsed by various members:
Increase the payroll tax, with the additional funds going into individual accounts. Investments would be managed by an independent board.
Let the government itself invest part of the trust fund in stocks as well as U.S. bonds.
Divert some payroll tax money into individual accounts. Workers would have a wide range of investment options.
The problem with letting individual workers invest part of their Social Security taxes themselves is that investments can go sour. With the stock market posting spectacular gains, the outlook is alluring. But the market as a whole could plunge or the workers could simply make bad investment choices.
If there were big losses, people who depend wholly or in large part on Social Security for their retirement could be in distress. The government would be pressured to bail them out.
The problem with letting the government invest the money for the workers is that it could weigh heavily on presidents and other administration officials as they made decisions they knew could affect the markets.
Although market reactions already figure into government decisions, they could become much more important with the government managing many billions of dollars of investments. The conflict of interest could be monumental. Having an independent board manage the investments might help a little.
Something has to be done to save Social Security. Investing tax revenues in stocks is not the only option, and the risk may be unacceptable to many. Raising the age of eligibility, correcting cost-of-living adjustments and restraining the growth of benefits are other options. At this point, it makes more sense to proceed with those steps and to go slow on investing in stocks.
This year Governor Cayetano and his allies will press on with their attempt to abolish the no-fault system, which limits personal injury lawsuits to the more serious cases. They've got it all wrong. The way to bring auto insurance premiums down is to strengthen no-fault in order to make it harder to sue. By reducing the costs of litigation, no-fault can help lower premiums. The so-called reform of abolishing no-fault would do just the opposite. It would be good for the trial lawyers, not the consumers.
Rupert E. Phillips, CEO
John M. Flanagan, Editor & Publisher
David Shapiro, Managing Editor
Diane Yukihiro Chang, Senior Editor & Editorial Page Editor
Frank Bridgewater & Michael Rovner, Assistant Managing Editors
A.A. Smyser, Contributing Editor