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JEFF JACOBY

Social Security still needs fixing

PRESIDENT BUSH'S campaign for Social Security reform has yet to catch fire, his strenuous efforts to ignite it notwithstanding. Those efforts included a 60-city speaking tour earlier this year, at the end of which opinion polls recorded no more enthusiasm for his proposed overhaul -- the creation of personal retirement accounts -- than when it began.

During a press conference last week, Bush acknowledged that Congress has no appetite for dealing with the issue -- a simple statement of fact that was promptly spun in some circles as a concession speech. But when a reporter asked if ''Social Security is off until next year," Bush was adamant:

''Social Security, for me, is never off; it's a long-term problem that's going to need to be addressed. . . . I just want to remind people, it's not going away. It's not one of these issues -- 'Well, if we don't deal with it now, maybe it will fix itself.' It gets worse over time, not better."

Social Security is hurtling toward a cliff; that is clearly one of the ways in which it is getting worse over time. Because it is a pay-as-you-go scheme, with current retirees' benefits paid from current workers' taxes, it can remain solvent only as long as the ratio of workers to retirees stays comfortably high. But that ratio is plummeting -- from 17-to-1 in the 1950s to only 3-to-1 today. In little more than a decade, payroll taxes will no longer be enough to cover benefits. Social Security's deficits will rapidly explode. By 2020, it will be losing $72 billion a year. By 2030, losses will be $275 billion a year. To keep the system from collapsing, Congress will have no choice but to massively hike taxes, slash benefits -- or both.

That isn't the only way in which Social Security is getting worse over time. When the program began, payroll taxes consumed a tiny fraction of American paychecks -- just 3 percent of the first $3,000 of income, or a maximum of $90 a year. On that investment, workers could expect to earn a very handsome return, assuming they lived to retirement age.

But over the years, payroll taxes have been relentlessly raised -- the rate is now 12.4 percent of the first $90,000 earned, or as much as $11,160 a year -- and the return on those taxes has dwindled to almost nothing. According to Stuart Butler of the Heritage Foundation, the average male worker about to retire today will realize only a 1.27 percent return on his lifetime of payroll taxes -- less than he would have gotten from a savings account. For younger workers, the outlook is even worse. A 25-year-old employee can now expect a lifetime return of minus 0.64 percent -- a net loss. And the more Social Security takes out of Americans' paychecks, the less Americans have left to save for themselves.

The Bush administration deserves great credit for calling attention to the system's looming insolvency and for pointing out what a lousy deal Social Security has become for most of us. That part of its message has gotten through. Polls consistently show that a majority of the public does not expect Social Security to have enough money to pay their retirement benefits when they are ready to retire. At least 50 percent describe Social Security as having ''major problems," with another 15 to 20 percent saying it is in a ''crisis."

But it isn't enough to sell the problem; Bush has to sell the solution, too. And the way to get Americans excited about personal retirement accounts isn't to dwell on insolvency and rates of return and what the numbers will look like 50 years down the road. It is to focus on freedom and opportunity and dignity -- on the advantages of a Social Security nest egg they could actually own as opposed to an unfunded government promise that can be changed at any time.

Yes, personal accounts would help the system in the long run. But the better reason to champion them is that they would give Americans more control over their own lives. Personal accounts would be vehicles for creating real wealth, not accounting gimmicks in phony government ''trust funds." Your personal account would be yours, not Washington's -- and if you died before reaching retirement age, it would become the property of your heirs. Under the current system, nothing in your Social Security account belongs to you, and if you die before retiring, it doesn't pass to your loved ones.

The late senator Daniel Moynihan, a lifelong Democrat, favored personal retirement accounts. They offered, he wrote, something better than a government benefit: ''an estate! For doormen, as well as those living in the duplexes above." That is the spirit in which to reform Social Security.

Jeff Jacoby's e-mail address is jacoby@globe.com.

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