Social Security Debate About More than Fuzzy Math

October 30, 2000Contact: Lance FeyhPhone: 573-341-4966E-mail: [email protected]

SOCIAL SECURITY DEBATE ABOUT MORE THAN FUZZY MATH

ROLLA, Mo. -- The presidential candidates' debate over social security is about more than fuzzy math and lock boxes, say two economists at the University of Missouri-Rolla.

According to Dr. Gregory Gelles and Dr. Richard Bryant, UMR economists who are about as far apart on the issue as the two presidential candidates, the debate on social security centers around competing ideologies.

Both George W. Bush and Al Gore call for an end to the government's policy of simply diverting the current social security surplus. But that's about all they agree on. Gore wants to save the money in a "lock box." Bush wants to let individuals invest their share of the surplus in the stock market.

Bryant, like Gore, thinks the government should continue to honor its social contract with Americans to provide retirement payments, disability insurance and survivor's benefits by saving enough money in a collective government trust to ensure that future generations will get their promised share of social security.

Gelles, like Bush, thinks Americans should be allowed to invest a percentage of their own social security in mutual funds, a plan that would conceivably create more retirement wealth for individuals.

The amount withheld for social security from each pay check an American worker earns is 12.4 percent. Currently, 10.4 percent of that money is needed to cover social security obligations. The remaining two percent is diverted by the government to other areas. Two percent of an individual's gross income accounts for 16 percent of their FICA withholdings.

"There is no reason why additional wealth can't be created by individuals," says Gelles, professor and chair of the UMR economics department. "If stock market trends continue like they have for many decades, there is little doubt that people can profit from Bush's plan."

Bryant, an assistant professor of economics at UMR, says the investment advantages of Bush's plan would go to the wealthy. "Social security is more than just a payment at the end of retirement," he says. "Thirty-two cents out of every dollar goes to widows or to the disabled. Social security, which was initiated in 1935 by Franklin Roosevelt, is one of the most effective ways we have to redistribute income and reduce the chances that one's retirement will be spent in poverty."

Gelles counters that the world is a lot different today than when social security was created. He thinks all Americans ought to have an opportunity to make more money for themselves and become less dependent on the government. "Bush isn't threatening to eliminate social security," Gelles says. "We're talking about 16 percent. Even under the worst-case scenario, a major portion of the money would still be there."

Under both plans, all social security funds, whether withheld or invested, are "untouchable" until an individual reaches retirement age. Either way, the surplus will dry up some time after 2020, when the social security demands of retired baby boomers begin to exceed the contributions of working Americans. At that time, the amount of necessary FICA withholdings will surpass 10.4 percent and possibly exceed the 12.4 percent currently withheld, thus eliminating talk of a surplus.

Like Gore and Bush, Bryant and Gelles disagree about just when the surplus will dry up. The system as structured is solvent through 2037, Bryant says, but Bush's plan would cut into the surplus much faster, making the system insolvent by 2023. Gelles argues that the social security trust fund is only an accounting creation. Whether we have a trust fund or not, he says, the government will be increasingly forced to pay for social security out of general revenues.

There's little question that Americans will be forced to allocate more of their money in 20 or 30 years to ensure the continuation of full social security privileges, but neither Bryant nor Gelles is very worried about the system going bankrupt. The current dilemma, they say, is generally a good one. What should we do about the surplus in the meantime?

On Nov. 7, the answer will become a lot less fuzzy.

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