Brace yourself for a big battle over Social Security

Tuesday, November 30, 2004

Brace yourself for a legislative battle over Social Security in the 2005 session of the U.S. Congress. The issue -- which has been building towards a showdown for several years -- is whether the federal government should allow future retirees to divert a small part of their Social Security withholding into private individual investments.

President Bush has been pushing for this option since taking office, but he is strongly opposed by a number of Democratic leaders, who argue that the diverted money would force higher deficits. That's because there would not be enough money left in the Social Security fund to pay current retirees.

In response, backers of individual investments contend that a short-term increase in deficits would be offset in the long run by a stronger, more fiscally sound Social Security system.

On one thing, however, all sides are agreed. Something must be done to change Social Security or the system is headed for default in future years. The reason is that "Baby Boomers," born after World War II, are entering their retirement years, putting a great strain on Social Security resources.

For political reasons, the U.S. lawmakers have been hesitant to solve the Social Security problem in the most obvious ways: (1) By raising the retirement age even higher than it is now; or (2) By raising payroll taxes. Both of those options would be hugely unpopular with voters, and, so far, neither party's leaders have been willing to take the political risk.

Because of that, President Bush may be on the right track with his individual investment option. He's not suggesting a large percentage -- just 2 percent as a starting point -- but that diversion, in the long run, could be enough to keep Social Security afloat.

There's definitely reason for caution. The U.S. doesn't want to jump into individual investment accounts without lots of study and open debate. But the time has come to get informed and to work hard for your point of view, because it appears very likely that individual investment accounts for Social Security will be a hotly debated topic during the 2005 session of the U.S. Congress.

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