Retirement Insights

Social Security: Will It Be War?

By Karen Gilgoff

Is the United States on the brink of intergenerational warfare over the future of Social Security and Medicare? At a recent meeting of AARP’s Legislative Council, Rep. Bill Thomas (R-Calif.) was determined to fire off a warning shot. Thomas is the new chairman of the powerful House Ways and Means Committee, which oversees most legislation dealing with the two big social-insurance programs.

Thomas and the equally powerful AARP disagree on some fundamental issues. For example, he strongly supports replacing part of Social Security with individual investment accounts. AARP (and AFSCME) feel that investment accounts are fine as an add-on but should never take the place of basic benefits, which must be reliable and risk-free.

Thomas didn’t mince words, terming Americans the "greatest recipients in the largest intergenerational transfer of wealth in history." As long as current benefits are protected, Thomas said, AARP has no business fighting individual accounts, since that’s what younger people want.

Many seniors took offense at the implication that they were selfish. One man said he opposes changing Social Security because the system works and should be there for his children and grandchildren. And a woman told Thomas, "I would rather you do something for the people who have no health insurance — instead of giving me a tax cut."

Do younger people really want to change Social Security, and are older people standing in the way? Not according to recent polling by Peter Hart Research and the 2030 Center, a group representing the economic interests of "Generation X" (20- and 30-somethings). Among the poll results:

• Over 80 percent of young Americans said they support the Social Security system.
• Three of five think Congress should give priority to preserving and strengthening the system over other issues important to young people, such as protecting the world’s rain forests (20 percent).
• A full 85 percent believe that "senior citizens generally need and deserve the government benefits they receive, so [the system] is not unfair to young people."
• Among various options for using the projected federal budget surplus, 59 percent favored strengthening Social Security to cutting taxes; 67 percent said they preferred protecting Medicare to tax cuts.
• By a margin of 55 percent to 39 percent, young Americans declared ensuring a decent guaranteed benefit more important than "making sure people receive a better rate of return."
• The 2030 Center says young adults are often attracted to the idea of individual accounts until they understand the costs involved. Over 80 percent oppose raising Social Security’s retirement age, and 76 percent oppose cutting back on basic benefits — elements of most of the leading privatization schemes.

According to the center, Generation Xers are more likely to support a guaranteed benefits plan that uses the budget surplus to bolster the Social Security Trust Fund and increases the cap on wages subject to the payroll tax (from the current $80,400 to $100,000). Almost 70 percent preferred this type of plan to one that couples individual accounts with various types of benefit reductions.

Clearly, there will always be some young people who’ll want to invest their Social Security contributions in the stock market, but most will opt for the current system when they know the facts. When it comes to Social Security (and Medicare, too), seniors and their grandchildren understand each other pretty well. It’s far from warfare.

Disabled Lose with Private Accounts

According to a new report by the General Accounting Office (GAO), an investigative arm of Congress, persons with disabilities could be big losers if a portion of Social Security payroll contributions were diverted from the current system to fund individual investment accounts. Those privatization plans generally require cuts in basic benefits to make up for reduced revenue coming in now.

Privatization advocates say the cuts can be made up in big stock market returns. GAO refutes this claim, particularly for the disabled.

GAO says a 45-year-old worker who becomes disabled could lose 18 percent of his/her lifetime Social Security benefits under an individual accounts plan. A major reason: The person’s relatively short work history means less time to accumulate money in an account.

Sen. Tom Harkin (D-Iowa), chief sponsor of the landmark Americans with Disabilities Act of 1990, called the report "a wake-up call for policy makers," and he urged caution in the rush to reform Social Security.