Al Gore's Risky Social Security Scheme

Commentary by Pete du Pont
For a number of years there was a general perception among voters that candidates for high office never addressed issues of importance to the average person. This perception made it easy for many Americans to turn off and to tune out.

This is no longer the case. Campaign 2000 is shaping up to be one of the most hotly contested issues campaigns in recent history. And the single biggest issue of the campaign is what to do about Social Security, once known as the "third rail of American politics" because of the deadly effects touching it had on one's political fortunes. As issues go, this one's worth tuning in for.

Social Security is a "pay-as-you-go" program, meaning today's workers pay the benefits for today's retirees. While this worked in the past, the ratio of workers to retirees is shrinking as people are living longer and having fewer kids. For example, in 1945, two seniors were collecting benefits for every 100 workers paying the Social Security tax. By 2075, there will be fewer than two workers to support every beneficiary.

By 2015, workers' payroll taxes won't be enough to pay all Social Security benefits. That is when the trust fund, which holds special government bonds, is supposed to make up the difference. However, to redeem the bonds, the government must either raise taxes, borrow from the public, or reduce benefits.

Gov. Bush and Vice President Gore have drastically different approaches to solving the problem. Bush would first protect current retirees and those close to retirement from any changes in the benefits they are promised. Second, he would allow younger workers to have the option to invest a small portion of their payroll tax money into a private account similar to a 401(k) or an IRA, thus giving workers real assets that can be passed on to their heirs.

Gore, as he does with any proposal made by the Texas Governor, has labeled this a "risky scheme." But would personal accounts really be risky? You can see for yourself by logging on to Internet sites like, which allow you to see the difference private investments could make.

So what does Gore propose? First he would add to the program's liabilities by offering an earnings credit for nearly 8 million women who leave the workforce to raise their children. Valued at about $16,500 a year, the credit would raise each woman's benefits by approximately $600 per year. He also proposes increasing benefits for widows from two-thirds of what their combined benefits were when their husbands were alive, to a full three-fourths.

What about that financial shortfall you ask? Gore would use current Social Security surpluses - money taken from workers paychecks in excess of what is actually needed to pay current benefits - to pay down the national debt. If the debt were significantly lowered, he argues, the federal government would save huge amounts of money in future interest payments that would no longer have to be made. Gore then proposes crediting the Social Security trust fund with those savings.

On paper, this would extend the life of the trust fund until approximately 2050. But does that really matter? After all, the trust fund does not represent real assets, but merely government IOUs written to itself for future tax revenues. Essentially, Gore is proposing to add more IOUs to the trust fund. He's gambling that the money saved by not having to pay interest on the debt will be available to pay these IOUs when they come due, and that Congress will not spend any of it.

Yet even if Gore wins that bet, and every penny of interest savings is available to redeem the IOUs, it still does nothing to solve the fundamental problem underlying the system; the dwindling revenue stream caused by the declining ratio of workers to retirees.

Dedicating the estimated $230 billion of interest savings to Social Security would only put off the day the system starts running a deficit from 2015 to 2021, and that's not even taking into account the impact of his "mother's credit" or widow's increase. After that, trust fund IOUs notwithstanding, benefits will either have to be cut or taxes will have to be raised.

Gore's betting that he can confuse and scare enough voters to get elected, and that by the time the bill comes due, it'll be another president's problem. As far as risky schemes go, it looks like Gore has Bush one better.



The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues. The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.