Soon after the last votes are counted, the United States will jump into another vital debate, this one on the future of Social Security.
President Clinton's Advisory Council on Social Security plans to publish its report by Thanksgiving, says its chairman, Edward Gramlich, a University of Michigan economist. The 13-member panel, appointed in 1994 to make recommendations on how to cope with the growing population of retirees, has been divided three ways on remedies. All three proposals involve investing some portion of Social Security tax revenues in the stock market.
Wall Street is already salivating. "There could be huge new opportunities for the financial services industry," writes Greg Smith, an analyst at Prudential Securities Inc. in New York. "This could become the major legislation of the next four years."
At issue is how to finance a bulge of baby boomer retirees starting in 15 years.
In a debate with Republican candidate Bob Dole, Mr. Clinton spoke of appointing a bipartisan commission to tackle the issue. That was a surprise to Mr. Gramlich. "We viewed ourselves as the commission to save the system," he says. Nonetheless, he can see some utility in naming a group of Republican and Democratic politicians to sort through the proposals. The new commission would presumably make it easier for both parties to take any political heat resulting from tax increases or benefit reductions needed to cover the program's growing costs.
Some analysts portray the system as facing insolvency. Peter Peterson, chairman of the Blackstone Group investment bank, titles a new book: "Will America Grow Up Before it Grows Old? How the Coming Social Security Crisis Threatens You, Your Family, and Your Country." He paints a frightening picture: "By doing nothing - that is making no significant change in federal benefits or federal taxes - we could wreak the certain destruction of our economy well within the lifetime of most baby boomers."
But to Yale University professors Theodore Marmor and Jerry Mashaw, "Peterson's assertion that something very like the current system cannot be financed is nonsense." In the current issue of The American Prospect, a liberal magazine, the two write that Social Security finance "requires prudent adjustment, but not major revision."
One option: little fixes
They note that Robert Ball, former commissioner of Social Security, and five other members of Clinton's advisory council have proposed a plan totally eliminating any deficit in Social Security finances for 75 years with "six modest adjustments." The steps include extending Social Security coverage to currently excluded state and local employees, taxing Social Security benefits that exceed an individual's contributions while working, correcting the current overstatement of the consumer price index used to calculate cost-of-living increases, and shifting approximately 40 percent of the Social Security trust funds, now invested in Treasury securities and totaling about $200 billion, into corporate stocks that presumably would offer higher returns.
An alternative, suggests Dean Baker, an economist at the Economic Policy Institute in Washington, is boosting the payroll tax supporting pensions by one-tenth of a percentage point a year from 2010 to 2046. This would raise the combined tax on employees and employers, now 12.4 percent, by 3.6 percentage points. Despite the extra tax burden, workers would still be far better off than today because of an anticipated 1 percent annual boost in productivity - and thence living standards. Also, when the baby boomers retire, there will be relatively fewer children - the other age group that relies on working people for the provision of goods and services.
Mr. Marmor says concerns about Social Security "can be belayed in part" by noting that countries in northern Europe pay relatively more generous pensions than the US does and yet already 18 to 20 percent of their populations are over age 65 - a proportion the US will reach only when the boomers retire.
Big change backed by Wall St.
Some Wall Streeters have begun a campaign to get Social Security privatized, holding seminars and giving money to conservative think tanks, including the libertarian Cato Institute. The most radical of the advisory council proposals, backed by council-member Carolyn Weaver, who also advises Mr. Dole on Social Security, would create personal retirement accounts managed by each individual - not the government. Almost half of the 12.4 percent payroll tax would be diverted into these accounts. Those who mismanage their accounts would have only a below-poverty government pension to fall back on.
To Marmor and Mashaw, proponents of radical privatization plans "are not practicing full disclosure. Privatization has much more to do with ideological preferences and economic interests than with the solvency of Social Security."
By diverting only 2 percent of payroll into private accounts, some $60 billion a year would flow into Wall Street.
Radical privatization would also weaken the social insurance aspect of Social Security, Marmor and Mashaw argue. The present system insures all workers and their families against the dual risks of dying too young and leaving their families destitute and living so long that their retirement savings run out. The researchers ask, "Do Americans want a society that merely mandates savings and investment for retirement, while leaving the ultimate security of workers and their families to be determined by their market success?"