President Bush cranked up his sales pitch for Social Security “reform” recently while continuing to dodge the most important question:

If workers are allowed – or required – to put part of their payroll contributions into personal investment accounts holding stocks and bonds, how much will their traditional, guaranteed benefits have to be cut?

By 25 percent? By 50 percent?

Cuts would be needed because in the Social Security system, payroll taxes from current workers pay benefits to current retirees. With some contributions diverted to personal accounts, there would be less money to pay benefits.

Without knowing how big the cuts would be, it’s impossible to judge whether ordinary workers would have any reasonable chance of offsetting them with investment gains in their personal accounts, as the president says they would.

Clearly, by ducking this issue, the president hopes to give the personal-account scheme enough momentum to carry it through Congress once the grim details are known.

Before that happens, let’s note that the situation isn’t as bad as he says it is, and that there are good remedies he refuses to consider.

The president has described a Social Security funding gap of about $10.5 trillion. In fact, it’s about $3.7 trillion spread over the next 75 years, according to the Social Security Administration, whose seven trustees include three Bush cabinet members.

Bush gets his bigger figure by using an infinite time horizon rather than 75 years. Thus, he makes the problem look worse than it is. Moreover, he insists his remedy will fix Social Security forever.

But it’s impossible to forecast conditions hundreds of years into the future. How long will people live? How will the economy and financial markets perform? Will immigration bring more young workers to the United States than we currently expect, thus making the ratio of workers to retirees better than we anticipate?

Trying to forecast Social Security’s needs 100 years from now is like trying to anticipate our military-spending needs in the 22nd century. All big government spending programs need constant adjustment as conditions evolve; Social Security is no different.

The $3.7 trillion funding shortfall projected by SSA looks like a lot, but it’s not so bad spread over 75 years. Last March, the SSA trustees’ annual report said the gap could be closed by raising the payroll tax by 1.89 percentage points.

That would push the tax to 14.29 percent of a worker’s wages from the current 12.4 percent. If the tax continued to be shared evenly by employer and employee, the worker’s tax bite would go up by just under 1 percent. A person earning $50,000 a year would pay about $10 more a week.

But why not make employers pay the full increase? A 2 percent increase in payroll costs is not so much. And employers have enjoyed big savings in other expenses. Tax rates on capital gains, dividends and income have all been cut under Bush. And many employers have saved fortunes by scrapping traditional pensions in favor of 401(k) plans.

Let the boss pay more for Social Security.

Unfortunately, the tax-increase option is anathema to the president, who seems to believe tax cuts are the solution to everything. When he appointed a commission in his first term to recommend ways to strengthen Social Security, he forbade it from recommending tax increases, and he ordered it to propose personal accounts.

He also told the commission not to recommend that any portion of Social Security’s current surplus, or “trust,” be invested in the stock market, though that’s common among public and private pension plans.

The trust, currently about $1.6 trillion built up since the early 1980s, is composed of payroll-tax collections beyond those needed to pay current retirees’ benefits. It is invested in U.S. Treasury bonds that, historically, have earned far less than stocks.

Why have workers use personal accounts to invest in stocks, while denying that option to the Social Security trust? Apparently, Bush thinks it’s acceptable for ordinary people to lose their money in the stock market; that’s too much risk for the government.

Let’s not let the president stampede us on personal accounts, which could well leave our children and grandchildren poorer in old age than we will be.

Social Security does have a long-term funding problem, but the system is healthy enough to pay all benefits promised through 2042, according to the SSA.

We have plenty of time for an honest look at all sorts of remedies.

—

(Jeff Brown is a business columnist for The Philadelphia Inquirer. E-mail him at brownjphillynews.com.)

—

(c) 2005, The Philadelphia Inquirer.

Visit Philadelphia Online, the Inquirer’s World Wide Web site, at http://www.philly.com/

Distributed by Knight Ridder/Tribune Information Services.

AP-NY-01-24-05 1607EST