Word: funds
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Dates: during 1980-1989
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Congress overhauled the retirement program in 1983, after dire predictions that the Golden Age for the post-World War II generation would bring on the Dark Ages for Social Security. Before the reforms, the trust fund had worked more like a chain letter than a pension plan. Each current retiree's benefit check required payroll taxes from four current employees. But so many children were born right after the war and so few after 1964 that the pay-as-you-go system threatened to collapse when the boomers retired. In the first half of the next century there will...
What to do with the money until it is needed? Democratic Senator Terry Sanford of North Carolina has introduced a bill that would require the trust fund to make loans for education and economic development. Republican Congressman Bill Green of New York wants to invest the fund in public works like housing projects. Says he: "The future, albeit temporary, riches of the Social Security system offer us a genuine opportunity to deal with some pressing national needs." But critics charge that using the surplus for general governmental programs creates a demand that is hard to turn off once the need...
Already, three other nations have faced similar surplus quandaries. Japan restricts excess retirement money to a reserve fund, which boosts the country's savings rate. The Canadian government lends its pension cushion to provinces to support schools and build roads, and Sweden's fund is used to finance mortgages and pay off debt. Lending the money can be a good idea, says Barry Bosworth, a senior fellow at the Brookings Institution, "if the loan goes to develop capital growth and productivity rather than consumption...
...senior economist at Salomon Brothers, "many people are now paying higher ((Social Security and Medicare)) payroll taxes than income taxes." The thing to do, argues Robert Myers, chief actuary of the Social Security Administration from 1947 to 1970, is to cut the payroll tax so that the trust fund has no more than a six- to twelve-month cushion. The only problem with that solution: it virtually guarantees that sometime in the future, lawmakers will have to slash retirement benefits or raise taxes sharply...
Some analysts doubt that the expected 40-year buildup in the Social Security fund will come to pass. Ben Wattenberg, a senior fellow at the American Enterprise Institute, predicts that within the next decade, soaring health- care costs could overwhelm the Government's Medicare fund, which is partly financed by the same payroll taxes that go for Social Security. If that happens, he says, Congress might keep Medicare going with money from the retirement fund. "And when that money has paid for Medicare, who will finance the retirements of the baby-boom generation?" he asks. Welcome to the budget debates...