We Cannot Be 'Reassured'

The social security debate is about to take a big step backward. Starting this week, the Social Security Administration launches what it calls "the largest customized mailing ever undertaken by a federal agency." About 125 million workers over 25 will receive annual estimates of their future Social Security benefits. This seems like a good idea, but it isn't. It will unavoidably create much misinformation--many people will receive unrealistically low estimates of their benefits--and will probably harden popular resistance to overhauling Social Security and Medicare.

Let's imagine the public reaction to these benefit statements. Well, some people won't react at all. They'll discard the envelopes as junk mail. But among the rest, not many are likely to think: "Uncle Sam is being too generous." Some will conclude that their benefits are too low and should be raised. Others will see the benefits as untouchable--a guaranteed form of property right. None of this will help us prepare for the aging of the baby-boom generation.

Recall that, by 2030, the projected ratio of workers to Social Security beneficiaries will drop from today's roughly 3-1 to about 2-1. Plausible budget projections indicate that, as now constituted, Social Security, Medicare and other retirement programs will rise to two thirds of federal spending, even if nonretirement programs are cut sharply. If they aren't, taxes or budget deficits will rise. The pressing need is a gradual and partial reduction in retirement spending through some higher eligibility ages or lower benefits. More "means testing," for example, would cut benefits for wealthier retirees.

We ought to be debating these issues, but we aren't. The debate, to the extent that it exists, concerns "saving Social Security" and "saving Medicare"--code words popularized by President Clinton for preserving all benefits, or even increasing them. We ought to move in the opposite direction, though not to punish future retirees (born in 1945, I will--with luck--become a baby-boom retiree). The reason is to avoid the adverse effects of excessive retirement spending. It threatens to overburden tomorrow's workers--our children--with taxes. Or it may squeeze other important national needs, from defense to education to research.

There is a genuine dilemma here: what seems good for us as individuals (higher retirement benefits) may harm us as a country. But the "collective good" does not vote; individuals do. Only political leaders can disarm the dilemma by framing the larger national interest in terms that connect with individual voters. President Clinton refuses to do this. The real issue is not "saving" Social Security or Medicare but balancing the interests of younger and older Americans. The debate should involve, if you're searching for a slogan, generational justice.

Given Clinton's record, no one could be blamed for seeing Social Security's mail campaign as an election-year device to remind voters that Democrats protect retirement benefits. It isn't that, though the mailings may have the same effect. The program is the brainchild of one of our more thoughtful legislators, Sen. Daniel Patrick Moynihan of New York. In 1989, he persuaded Congress to adopt the requirement as a way "to reassure Americans that Social Security will be there for them."

Because the mailings represented a "large administrative undertaking" (Moynihan's words), Congress gave the agency a decade to comply. In fiscal 1995, SSA began test mailings to 7 million workers 60 and older. The statement has been redesigned to make it easier to understand. No doubt, some good could come of this exercise. It could cause people to pay more attention to private saving by indicating that Social Security doesn't fully replace wages or salaries.

Unfortunately, Social Security's statements will be inaccurate. To estimate a worker's benefits, the SSA has to know the worker's future earnings. (Benefits are based on the highest 35 years of earnings.) Because the SSA doesn't know this, it had to make an assumption. It assumed that workers' present wages would stay the same until retirement. For older workers--say 50 and above--this may not matter much. Their wages may be near their peak. But for younger workers, it matters because earnings rise over time. In 1996, men between 25 and 34 working full time earned an average of $33,055; by contrast, earnings of men 45 to 54 averaged $51,705. As a result, SSA's benefit estimates for younger workers may dramatically understate plausible payments.

Just how much confusion or resentment this will cause is unclear. To be fair, SSA's approach is probably the best among bad choices. Estimating people's future earnings would be hard to explain and might overstate benefits. This could cause people to undersave. In truth, there's no good way to do what Moynihan wants done. (Note: the 125 million mailings will be spread throughout the year. People will receive statements about three months before their birthdays. Also, individuals can request benefit calculations based on their personal estimates of future earnings. About 4 million people do this annually. Social Security's phone number is 1-800-772-1213.)

The larger question is whether Moynihan's central aim is desirable. People can be sent pieces of paper with numbers. But they cannot legitimately be reassured. We can deny the stresses of an aging society. We can create theories of why all currently promised benefits can easily be paid. We can delay debating these issues. But we cannot prevent society from aging, nor predict the consequences. Unless other spending demands melt, future pressures for higher taxes, spending or deficits will be intense. One possible reaction would be to cut retirement benefits.

It would be prudent--even reassuring--to make modest cuts now. This would recognize that older Americans are healthier and wealthier than they once were. It would give future retirees a fair warning. But our "leadership" (with Clinton in front) declines to do this. It substitutes pleasing platitudes for sensible debate. The new benefit statements make a bad situation even worse.