Senate Minority Leader Harry Reid (search) has embarked on a nationwide tour to discuss Social Security reform.
Well, not really. You see, Senator Reid will not talk about reform, because he believes there is no need for reform. "There is no crisis," he will tell you.
But Senator Reid is wrong. And instead of touring the country ridiculing his colleagues for trying to fix this important program, he should be in Washington helping to iron out a solution.
Whether Senator Reid thinks Social Security is in a "crisis" or not, the program will begin to run a deficit — spending more money on benefits than it takes in through taxes — in less than 15 years, by 2018 according to the last report of Social Security's trustees.
The so-called Social Security Trust Fund (search), which is supposed to help pay benefits until 2042, in reality contains only government bonds, essentially IOUs. Few doubt that those benefits will ultimately be paid, but the federal government will still have to find the money to pay them. Ultimately, Social Security's unfunded liabilities exceed $26 trillion. That's real money, even by Washington terms.
I’ve just thrown a lot of dates at you. But try to forget all that. Here’s the only date you (and Senator Reid, for that matter) need to concern yourselves with: 2008. That's when the huge group of Baby Boomers starts to retire and draw on Social Security. As Federal Reserve Chairman Alan Greenspan recently stated before Congress:
"Because the pay-as-you-go system will be very difficult to manage, we need an alternative … Real progress on these issues will unavoidably entail many difficult choices … But the demographics are inexorable, and call for action before the leading edge of baby boomer retirement becomes evident in 2008."
Let us trust Greenspan and grant that there is a serious problem. What does Senator Reid — the highest-ranking Democrat in Washington — propose to do about it? Nothing. He has no plan and no suggestions, just more demagoguery.
Senator Reid used to understand the power of markets. Back in 1999, he said, "Most of us have no problem taking a small amount of the Social Security proceeds and putting it into the private sector." Of course, we had a different president then, one from the Senate minority leader's own party.
As that former president — Bill Clinton — pointed out, there are really only three options for Social Security reform: raise taxes, cut benefits, or invest privately. As Reid has ruled out private investment, he could legitimately be accused of implicitly endorsing tax increases and/or benefit cuts.
And mighty big tax increases they would have to be; a 50 percent increase in the payroll tax or the equivalent. It would be a tax increase far higher than what Senator Reid would "save" by rolling back parts of Bush's tax cuts — even if he hadn't already promised to use those savings to fund other government spending. And, contrary to the senator's promises, a payroll tax increase is a tax hike that would fall like a piano onto workers earning less than $200,000 per year.
The benefit cuts would be no less draconian. Today's younger workers would face cuts of 27 percent in their benefits, severely diminishing their quality of life during their golden years.
Maintaining the long-term solvency of the system is far from the only problem. Social Security is set to provide today's workers with abysmally low returns on their "investments." The program unfairly penalizes African Americans, working women, and others. Workers don't have any guaranteed right to their benefits. In short, it is a program crying out for reform.
But Harry Reid continues to duck the issue.
That's unacceptable. Harry Reid needs to tell the American people what he plans to do about the looming Social Security crisis. If Reid plans to raise taxes to prop up Social Security, or cut benefits, he should tell us so. If he has another idea, he should share it with us.
But fearmongering is not a Social Security plan.