Social Security Reform Proposed by Bush Is Bad News

Jan. 15, 2003 - The Social Security personal investment accounts recommended by President Bush's commission would require tax increases, raising the retirement age and benefit cuts, according to a new report by the General Account Office.

The revelations came today in testimony of David Walker, Comptroller of the GOA, at a hearing of the Senate's special committee on aging, which was called by former chairman Sen. John Breaux (D-La.).

Walker analyzed a variety of plans for the future of Social Security -- including the three options proposed by President Bush's Commission to Strengthen Social Security. In addition, Walker released a GAO report at the hearing, requested by Sen. Breaux, concluding a year-long study of the Commission's plans.

Proposals by President Bush's commission also would require general revenue funds from the federal government for at least three decades - even if all Americans participated, the report said. The panel recommended a voluntary system favored by Bush.

A Senate committee analyzed the report and the various proposals to shore up future funding for Social Security by creating personal accounts. The cost to the government to overhaul the system, at a time when deficits are soaring again, make it unlikely that reform will occur soon.

"Today's hearing gave the American public a chance to hear an objective and honest assessment of the tough choices facing Social Security," said Sen. Breaux, who called the hearing and who supports private accounts. "Today's testimony allows us to remove ourselves from the political battles and remember why we are debating this issue to begin with - Social Security as we know it is heading for insolvency unless we act and act now."

The yearlong government study found that adding the accounts eventually would restore long-term funding to Social Security, but trade-offs would be required.

Those choices "will ultimately determine not just how much income retirees will have but also how long they will be expected to continue working and how long their retirements will be," said David Walker, the GAO's comptroller. "Reforms will determine how much consumption workers will give up during their working years to provide for more consumption during retirement."

He said the "window of opportunity" to make changes is closing, and that those hard choices will become even more difficult the longer Congress waits.

Reform is needed now "before the approaching demographic tidal wave makes the imbalances more difficult, dramatic, and disruptive," he said.

Social Security, a pay-as-you-go system, is expected to start paying out more in benefits than it collects in taxes by 2017. That's because the large Baby Boom generation starts retiring and the work force that keeps the system afloat through payroll taxes declines.

Investing in the stock market is one way to increase revenue, which "could improve the rates of return, but potentially expose individuals to investment risk and losses," Walker said.

Bush's agenda, minus Social Security, already is brimming over: a possible war with Iraq, a standoff with North Korea, a weak economy, a volatile stock market, domestic security, Medicare's problems and re-election.

Even supporters of personal accounts acknowledge that a major push from the White House is unlikely. David John, senior Social Security analyst with the Heritage Foundation, said that instead, he expects a "serious discussion" this year about personal accounts.

The 2004 presidential election also effectively removes the topic from next year's calendar, analysts say.

Any real action probably would come in 2005, John said. In the meantime, various proposals will be debated in Congress.

"I expect hearings, both in Washington and across the country," he said. "I expect there's going to be a major effort - in government and outside government - to have a comprehensive education campaign."

"Today's testimony allows us to remove ourselves from the political battles and remember why we are debating this issue to begin with," said Sen. Breaux."Social Security as we know it is heading for insolvency unless we act and act now. The longer we wait to address this issue the more difficult reform becomes."