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What ails Social Security?
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Recently, one of my readers criticized some points I made in a column. Among other things, he complained that my philosophy (at least according to his take on my columns) is too upbeat. He said this: "As you see it, everything about Social Security is good."

Most of the time, I use this space to explain complicated and oftentimes confusing Social Security rules and regulations. And I will admit that I must occasionally use this column to defend the program against all kinds of crazy and misleading rumors that are spread about Social Security's history and policies — mostly via the Internet.

But when I feel that something about the program, or something about the way the program is administered, deserves to be criticized, I have always done so. I don't have the space in today's column to cover them all, so I will take on one policy gripe, one program issue and one administrative complaint. I've covered all these subjects in the past, so I ask forgiveness of those readers who have carefully read my columns. But for those who think I'm some kind of Social Security apologist, listen up.

My biggest policy complaint has to do with the way the Social Security program has been financed since the 1980s. When Social Security started in the 1930s, it was set up with a pay-as-you-go financing scheme. In a nutshell, that meant the program took in only enough money (taxes) each year to pay its expenses (monthly benefits), with just a small cushion in reserve funding. That small cushion was the Social Security trust fund, which was invested, by law, in U.S. government securities. There never was really all that much capital in those trust funds, only enough to keep the system driving along over rough patches on the economic highway, like periods of high inflation or high unemployment.

But in 1983, President Reagan set up a National Commission on Social Security Reform, headed by Alan Greenspan. And they fundamentally changed the program's funding structure. By cutting some current and future benefits (e.g. eliminating student benefits and raising the retirement age) and by slightly increasing the Social Security payroll tax, they set Social Security on a course to build up huge reserves in its trust funds. In other words, they moved Social Security away from its historic pay-as-you-go formula to one of large capital accumulation.

The problem is that capital is U.S. government treasury notes. (Because Social Security represents about one-sixth of the entire federal budget, the monies cannot be invested in a diversified portfolio involving private securities. I don't think we want the government owning a controlling interest in Apple Computers or Philip Morris!) Anyway, right now, the system has about $2.8 trillion dollars in treasury securities, making the Social Security system the second largest holder of government debt, behind China! Many people, including me, don't like that funding structure. But it is what it is.

Think of it this way. If you are the Commissioner of Social Security, you will look at the Social Security trust fund and say, "I've got $2.8 trillion in assets saved up for my beneficiaries." But if you are the Secretary of the Treasury, you will look at that same fund and say: "I've got $2.8 trillion in debt that I owe the Social Security system." We, as either past or current taxpayers and as current or future Social Security beneficiaries have a foot in both camps. It's like we owe ourselves $2.8 trillion.

Coming at this from a strictly Social Security perspective, that scenario isn't great, but it's workable. The U.S. government will never renege on its Treasury note obligations, whether it is to individual American investors, or to foreign governments, or to the Social Security Administration.

But coming at this from the larger economic perspective of the country, this was no way to run a railroad. In my opinion. Social Security should have been kept on a pay-as-you-go funding basis, which would have forced politicians to make occasional and minor adjustments to the program (like very small payroll tax hikes or benefit cuts). That way we would have been paying for the Social Security programs we wanted all along, instead of pushing off the payment down the road. But then, who am I, a retired government bureaucrat and lowly columnist, to question the veracity and integrity of the likes of Alan Greenspan?

On the program front, I've always complained that Social Security needs to make several changes to its current rules and regulations. For example, I think the earnings penalty provisions of the law need to be eliminated. If you are getting Social Security retirement or survivor benefits and are under age 66, there are various income thresholds that beneficiaries must stay under or face harsh penalties. As I wrote in a recent column, these rules are an absolute mess to administer. And folks trapped by this system are constantly being overpaid or underpaid benefits.

I also would eliminate the loophole that currently allows potential retirees to delay their own benefits until age 70 (and thus, reap a delayed retirement bonus) while all the time collecting spousal benefits from a husband's or wife's Social Security record. These benefits were always meant to be paid only to dependent spouses, not to well-to-do retirees.

On the program administration front, I have frequently criticized the Social Security Administration for the some of the services it offers its customers. Although some readers will occasionally report a positive experience they have had dealing with their local Social Security office, I hear far too many complaints from readers who tell me about long delays when trying to get service — either on the phone or at a local office. And more troubling, they complain about getting poor service and misinformation — or they simply do not get a clear enough explanation of the rules and policies that impact them. If I were running the agency, among other things, I would change the way new employees are trained. When I was hired 40 years ago, I got about 3 months of intensive, non-stop, personal training. Today, SSA employees get half of that, and much of it is computer-generated training. You simply can't do a good job of explaining all these complicated Social Security rules and regulations if you don't thoroughly understand them yourself.