Fight terrorism by reforming Social Security

On the surface, it would not appear that Social Security has much to do with antiterrorism efforts. But as the largest entitlement program in the US budget, it does. The amount of taxpayer funds available for antiterrorism largely depends on whatever is left over after hundreds of billions are spent on entitlements.

September 11 made the nation realize that antiterrorism spending will likely have to balloon in future decades. But it comes at a time when entitlement spending is set to balloon as well. Currently about one in every eight Americans is 65 or older. In nine years the baby boom generation will begin to turn 65, so that by 2030, one in five Americans will be retirement age. The burgeoning elderly population places unprecedented demands on Social Security and Medicare. Faced with millions of seniors who could fall into poverty, policymakers will be under huge pressure to bail out Social Security and Medicare, at the expense of everything else.

Medicare is facing a potentially bigger demographic time bomb than Social Security. The Bipartisan Commission on Entitlements and Tax Reform estimated that the aging of the population will cause federal health care spending to double as a percentage of GDP by 2030.

Fifty years ago, entitlements constituted about a third of federal spending. There was plenty of money available for other government programs. Today, entitlements account for about two-thirds of the federal budget. And that portion is set to rise substantially.

Though the nation is spending billions on antiterrorism, it is still far short of what could be spent on antiterrorism. Were it not for the entitlement crowd-out, billions of more federal dollars would be freed up for spending on measures such as fortification of our nuclear power plants and other critical infrastructure, more police and security guards than what we can now afford, better security for our embassies abroad, and more FBI agents.

How do we reverse the trend so that entitlement spending as a percentage of the federal budget gets back to 1950s levels? We could drastically raise taxes on workers, we could drastically reduce existing benefits for current retirees, or both. But neither is politically possible nor morally wise. The solution is pre-funding--i.e., transforming spending programs into savings programs.

If baby boomers and younger generations were mandated to take the 15 percent of their earnings currently spent on Social Security and Medicare recipients and put that money into personal savings accounts, they would have a tremendous nest egg built up by the time they retire. The amount would be large enough that the 15 percent mandate eventually could be scaled back to, say, 10 percent.

Of course, suddenly placing 15 percent of workers' paychecks into personal savings accounts would not be feasible; current retirees still have to be paid. Therefore we should start by diverting a small portion of the Social Security/Medicare tax into savings accounts and gradually increase that portion over a period of years.

Meanwhile, the amount required to spend on entitlements would gradually diminish so that in a few decades hence, relatively little money would have to be transferred from workers to retirees. The government could then get back to devoting most of its spending on traditional government programs such as law enforcement.

It should be emphasized that this is a long-term and not a short-term solution. Because of the rapidly growing number of seniors, establishing personal savings accounts would not immediately eliminate the need to boost spending on entitlements. And diverting the Social Security surplus into these accounts would no longer allow us to get away with spending the surplus on non-Social Security-related programs. Personal accounts would, however, do much to solve the problem over the long run. But the hour is getting late; the longer we wait, the harder and more painful Social Security reform will be.

It is time America joins the roughly two-dozen other nations that have introduced Social Security personal accounts for their citizens. The terrorism threat will loom large in coming decades, and the world needs to devote all the resources it can to fight those who would do us harm. Reforming Social Security would be one of the best ways to free up the needed resources.

(Patrick Chisholm is a former managing editor at KCI Communications -- a financial publishing company -- and foreign affairs analyst at the State Department's Office of Mexican Affairs.. He has an M.A. in international affairs/international economics from American University. He is currently the principal writer and editor at PolicyComm, a consulting firm.)