September 24 2010

GOP's Pledge Ignores Social Security

Nicole Kurokawa Neily

At yesterday's release of the GOP's "Pledge to America," one of the first questions from the audience was: what about Social Security reform? It's a huge issue (one-fifth of the federal budget, unfunded liabilities in the trillions, and not sustainable by a long shot), yet, interestingly, one that was mentioned only in passing. The document merely states that the GOP will require "a full accounting of Social Security, Medicare, and Medicaid, setting benchmarks for these programs and reviewing them regularly, and preventing the expansion of unfunded liabilities."

Looking to our European neighbors, it's not hard to understand why the issue was overlooked (it is called the "third rail" of politics for a reason, after all.) Seven unions in France held a strike on Thursday against the government's proposals to raise the minimum retirement age from 60 to 62 by 2018, and the age to receive full benefits from 65 to 67. The French system - just like pension systems the world over, including here in the U.S. - faces a demographic time bomb, yet any attempts to defuse it have been met with indignation and civil unrest.

In the American system, the proportion of workers paying in to people taking money out is far lower than it once was. (In 1950, there were 16 workers contributing for every one person who received benefits; now it's down to a 3-to-one ratio, and is expected to decline to 2.1-to-one by 2035, according to page 10 of the Social Security Trustee Report.) In addition, retirees are living longer - and thus, requiring benefits for longer periods.

Sure, Social Security might have seemed like a better idea than a 401(k) when the market collapsed in 2008, but at the end of the day, future retirees are unlikely to actually receive what they paid in, plus interest. Even with the variance in the market, the rates of return in the private market are better than relying on the government's piggy bank.

A Gallup poll conducted in July 2010 showed that the American people understand the system is broken - 6 out of 10 people who have not yet retired said that they do not expect to receive benefits in the future.

As some pundits have noted, Rep. Paul Ryan - author of the Roadmap for America's Future, the only comprehensive solution proposed by a Republican House member to date - was conspicuously absent from yesterday's pledge rollout, perhaps an indication that the team isn't full on board with his ideas.

What's the solution, then? Unfortunately, a failure to acknowledge the problem only kicks the can further down the road, but doesn't make it actually go away. It's too bad the Republicans didn't have the political courage to tackle Social Security reform head on. Sooner or later, someone's going to have to pull off the band-aid, and it's going to hurt a lot.

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