· should Social security be partially privatized? · should the number of beneficiaries be reduced to ensure solvency? · what should be the future direction of medicare?

It is estimated that the U.S. social security system which has provided millions of older Americans "security against the hazards and vicissitudes of life", to quote its founder Franklin Roosevelt, will be exhausted by 2037. Today forty percent of recipients, most of them older women, would fall below the poverty line without their monthly social security check. Their benefits are ensured because 3.4 taxpayers pay into the system for every retiree (in 1945, there were 42 taxpayers for every retiree).

But beginning in 2014, with a rapidly aging baby boom population, the system will take in less in taxes than it pays out in benefits, and the Congressional Budget Office has estimated that massive tax increases will be needed to keep benefits at their current levels. Polls have found that most Americans do not think they will receive the benefits they expect when they retire. But support for the system is still strong. In fact, most prefer to use the budget surplus to shore up social security rather than use the surplus for tax breaks.

In March 2000, Congress eliminated a provision that restricted benefits paid out to older Americans who made more than $17,000 a year but the system has remained more or less untouched otherwise. Major changes can be expected no matter who assumes office this fall. Both Gore and Bush agree that better returns are needed on the social security trust fund which is composed of payroll taxes, but they differ radically on how to achieve that goal. At present, the return on a taxpayer's lifetime social security contribution is just about 2 percent.

Equally contentious is the future of Medicare, founded in the 1960s to provide universal health care to the elderly. Medicare is strained because of a rapidly growing aging population: 40 million Americans depend on Medicare in 2000, by 2035 the number is likely to be 80 million. About one-third of Medicare beneficiaries have no prescription-drug coverage at all and many of the rest pay high drug prices despite their coverage.

Both candidates are proposing what would be the most sweeping changes to Social Security since its inception in 1935. Bush wants to allow individuals to invest a portion of their social security payroll taxes in stocks and bonds and thus use the power of the stock and bond markets to help them in their retirement years and address the solvency issue.

Gore wants to leave the system unchanged and maintain the current level of guaranteed benefits even though the number of retirees will grow substantially. To achieve this he proposes supplementing payroll tax revenues with general income tax receipts. In addition, he wants tax incentives to help low and middle income people save for retirement outside of social security.

Should Social security be partially privatized?

Gore opposes privatization. Instead, he proposes a $200 billion program in which low and middle income taxpayers set aside extra money for retirement with a 401(k)-like plan. Instead of employers, the government would make matching contributions in the form of tax credits. He calls this 'Social Security Plus,' distinguishing it from Bush's plan which he calls "Social Security Minus' because, he says, it takes a trillion dollars out of the trust fund to invest it in the stock market in the hope of better returns.

Replying to charges that his plan does not address the issue of low return on investment for the trust fund, Gore said in the third presidential debate: "It's not a bank account that just pays back money that's invested; it is also used to give your mothers and fathers the social security checks that they live on. If you take a trillion dollars out of that social security trust fund how are you going to keep faith with the seniors?"

Bush accuses Gore of creating another costly government entitlement program that does not address the real problem of social security solvency and creates thousands more federal government jobs. Bush believes that the only long term solution to ensure solvency of social security is to improve the return on the trust fund. He supports partially privatizing the system to create voluntary private savings accounts so individuals can invest part of their social security taxes (up to 2 percentage points) in the stock market. In return, such individuals would get a smaller guaranteed benefit from the government. But in response to Gorežs questioning in their final presidential debate, Bush acknowledged that he would need to use $1 trillion out of the surplus over the next decade to cover the shortfall created by the establishment of these personal accounts. (But social security is projected to have a surplus of more than $2 trillion during that period, so taking $1 trillion for private accounts would not immediately threaten the ability to pay full benefits to current retirees, as Gore has implied it would.)

Critics point out that the wealthy would benefit more under Bushžs plan because they would invest more in their private accounts by definition. Boston Globecolumnist Thomas Oliphant observes: "Robbing Peter (current revenues) to pay Paul (investment accounts) would produce lower, net retirement income for people of average means because of the cuts in future social security benefits." (June 27, 2000)

Should the number of beneficiaries be reduced to ensure solvency?

Gore, who believes social security is a "solemn compact between the generations" opposes raising the retirement age or reducing benefits. He has proposed increasing the benefits to widows and to parents who take time off work to raise children. He says solvency of social security can be ensured by using the budget surplus to pay down the national debt, and using the money saved on interest payments to keep the system going till 2054.

Bush does not favor reducing benefits to current retirees or those near retirement. He would consider raising the retirement age for benefits if meant the program could keep going longer. He has released far fewer specific proposals than Gore, and says they will be formulated after bipartisan negotiation.

What should be the future direction of Medicare?

Gore proposes putting Medicare in a "lock box," so that its surpluses, which could be as high as $400 billion over the next decade, can only be used to shore up the program. About one-third of Medicare beneficiaries have no prescription-drug coverage at all and many of the rest pay high drug prices despite their coverage. Gore has promised to provide free drug coverage for 13 million low-income recipients, while those with higher incomes would pay part of the cost of their drugs. Critics point out that this will make the government too big a force in the setting of drug prices.

Bush Bush has proposed a comprehensive Medicare overhaul, named MediCARES, which he says will modernize Medicare by giving seniors the choice to select benefits they need most: annual physicals, hearing, eye, and dental care, and prescription drug coverage. While this program is being phased in, he would provide states with $48 billion to immediately help seniors with prescription drug coverage, picking up all or most of the cost for seniors at 175 percent of the federal poverty level. Long term care like nursing home stays not covered by Medicare, will be fully deducted annually from taxes. Persons with elderly dependents would be allowed to claim an exemption of about $2,750 annually. Bush also proposes charging wealthy Medicare recipients more for coverage, but he has disputed Gore's contention that many seniors are left out of his prescription plan, calling such arguments "Mediscare" arguments to frighten seniors into voting Democrat.

http://www.publicagenda.org/issues/frontdoor.cfm?issue_type=ss
Public Agenda's Issue Guide

http://www.nytimes.com/library/politics/camp/whouse/policy-social.html
New York Times Social Security Issue Guide (Note: this requires free registration)

http://www.usnews.com/usnews/issue/000605/5edit.htm
"A Bigger Nest Egg" -- This is a June 2000 editorial by David Gergen in US News and World Report

http://www.salon.com/politics/feature/2000/10/27/social_security/index.html
An article in Salon.com on why social security should be privatized.

http://www.socialsecurity.org/
Articles and analyses backing reform of social security from the libertarian Cato Institute