Long untouchable, Social Security becomes a major campaign topic
WASHINGTON (CNN) -- Presidents serve only four years in office -- eight if they're lucky. But one of the top issues in the 2000 presidential race is shoring up the Social Security system, a problem nearly four decades away.
The entitlement program has survived for 65 years, providing a guaranteed federal pension for U.S. retirees. But the country's demographics could undercut that guarantee.
The American Association of Retired Persons, which has long put Social Security among its top concerns, said its surveys show more than three-quarters of voters consider Social Security one of the most important issues in the election as well. Eleven percent consider it the most important issue in this year's presidential race.
Social Security was long considered to be the untouchable "third rail" in American politics. But at a time when the nation is flush with cash, both Republican nominee George W. Bush and Democratic nominee Al Gore are promoting new -- but radically different -- approaches to preserving the system.
The system has three workers paying in for every check it cuts. But that number will dwindle as the Baby Boomers begin to retire: Current official projections show the system running out of money in 2037.
Bush has proposed allowing workers to invest some of their federal retirement taxes themselves to earn a better rate of return -- a partial privatization of the 65-year-old retirement system. Gore, meanwhile, has proposed subsidizing tax-free retirement savings accounts for workers while keeping the current Social Security system intact.
The AARP does not endorse candidates, but it does evaluate their proposals. John Rother, the group's legislative and public policy director, said neither campaign has put forth enough details for the AARP can take a stand on either candidate's plan.
The group has endorsed the idea of individual retirement accounts on top of guaranteed benefits -- a position that on the surface is closer to Gore than Bush. However, Rother credits Bush for bringing up the issue in the first place.
"It's unusual in a campaign to discuss it," Rother said. "It's tough to talk about it in a way that doesn't scare people."
"The point is, we think the Social Security System should be shored up sooner, rather than putting it off," he added.
Bush targets market-savvy young voters
Bush pitches his Social Security plan toward younger voters. Taking advantage of the stock market savvy of today's middle class, he argues that individuals can bring in more money for their retirement by putting a portion of their taxes in "realistic, safe investment vehicles." Bush says that would leave "a powerful nest egg."
"(Vice President Gore) trusts the government to manage our retirement. I trust Americans to make their own decisions and manage their own money," says Gov. George W. Bush, addressing a crowd of senior citizens in Rancho Cucamonga, California on May 15.
"A worker who invests even a limited portion of his or her paycheck could, over a career, end up with hundreds of thousands of dollars for retirement," the GOP nominee said in a recent stump speech.
His campaign argues that a worker earning $20,000 a year could retire with more than $100,000 after inflation if he or she invested just a sixth of payroll taxes in a balanced fund of stocks and bonds.
In real terms, the Bush campaign argues, Social Security recipients get less than a 2 percent return on the money they pay into the system. Even conservative investments, meanwhile, earn between 4 and 6 percent. That would allow the system to survive without a tax hike.
In appearances like a recent one in Kansas City, Missouri, Bush rails against "loading up the Social Security Trust Fund with a bunch of IOUs." But some critics say that's exactly what his plan would do, since changing from today's pay-as-you-go system to a semi-privatized one would be expensive.
Alicia Munnell, a Boston College professor and a former assistant treasury secretary in the Clinton administration, said Bush first needs to explain how much he would allow workers to put into private accounts.
"He hasn't really specified exactly how much, but his staff and his advisers say it's probably 2 percent," Munnell said. "If you take that much money out of the system, the trust funds are going to go bust sooner -- and he has made no provision for that."
Munnell and two other Social Security analysts warned Bush in a letter in early September that "the arithmetic is simple."
If just 2 percent of that 12.4 percent tax were diverted into private accounts, that would mean $70 billion less going into the Social Security system to pay for benefits, according to the Employee Benefit Research Institute. The gap would increase to $128 billion in the year 2010 and more than $780 billion in the year 2050.
"I think that George Bush thought that there was great support for individual accounts, and that by making a bold new proposal he could appeal to voters," Munnell said. "But initial interest in individual accounts has faded when the prospect of a shortfall is raised."
"It's a program that people care about a lot, and I think in the end he's going to be sorry," she said. "I think this proposal to dramatically change the structure of the program is going to make people very nervous, and I think it should."
The AARP, in a survey released in mid-September, said the public is "intrigued" by the prospect of individual accounts. But it noted, "Support for both approaches diminishes when supporters are asked to consider a variety of possible consequences that might emerge."
Those questioned were less supportive of a Bush-style plan if it reduced guaranteed Social Security benefits or required a new government agency.
Gore plugs 'Social Security plus'
To counter Bush's position on Social Security, Gore has laid two lines of attack -- one practical, one ideological.
"To turn Social Security into a system of winners and losers would jeopardize Social Security for all Americans," Vice President Al Gore says May 15 at Pennsylvania's Beaver College. "Gov. Bush's plan takes the 'security' out of Social Security."
The practical concern involves how Bush would pay for his proposals: Gore warns that Bush's plan would leave Social Security reserves depleted and could threaten its long-term health. The ideological line is that investing Social Security funds in securities -- however safe -- undercuts the promise of a guaranteed income for seniors that Social Security has made since the New Deal.
Gore has said he would secure the Social Security Trust Fund by using the current budget surplus to pay down the national debt, freeing up money that would have gone to interest payments. Then he goes beyond that, calling for a national, supplemental retirement savings program he calls "Social Security plus."
Like Bush, Gore's private accounts would allow savers to invest in the stock market through mutual funds -- and investments could grow tax-free. But unlike Bush's proposal, Gore's accounts would be in addition to Social Security benefits.
Under Gore's proposal, the government could match low-income workers' efforts at a rate of $3 for every $1 saved. The plan is estimated to cost about $35 billion a year. Participation would be voluntary, and limited to households earning less than $100,000 a year. Workers could use the money toward retirement, college, home-buying or medical costs.
Critics like David John, a senior policy analyst at the conservative Heritage Foundation, said Gore's plan depends on optimistic budget numbers and would affect few of the working families at which it's aimed.
"It really does nothing to shore up Social Security. It's really just a middle-class entitlement," John said.
Families who are already struggling to make ends meet would be unlikely to have any money left over to save under the program. As many as 90 percent of them would be unable to participate in the Gore plan, John said.
"The only way you can participate in this is if you have some extra money," he said. And the second part of Gore's proposal -- raising money for Social Security by using current surpluses to pay off the national debt -- would be impossible if more people did enroll: "His budget numbers only work if about 5 percent of low-income people participate," John said.
In AARP surveys, a plan similar to Gore's proposal had strong initial support. But like the Bush proposal, that support faded when the pollsters raised the possibility of higher taxes or a new government agency.
Some -- including Green Party candidate Ralph Nader -- doubt the system is in peril at all, suggesting that economic growth can take care of the Social Security system's problems. But even among liberals, the view has little support.
"Government must either raise the rate of return on Social Security funds, cut benefits or raise taxes," Munnell said. "I think it's not likely we're going to grow our way out of it."
Added John, "This is an unpleasant situation. The more people look at it, the less they want to deal with it."