The Political Skirmish. Ronald Brownstein, the most respected political writer at the Los Angeles Times, has a good inside-the-beltway article (free registration required by the LAT) about the likelihood of Social Security reform. He is about the only one I will read of the Times, but that we will save for another post.
A little background. Social Security was started in 1935 to pay benefits to primary workers, and in 1939 survivors' benefits were added. Not until 1956 were disability benefits added. Life expectancy was 65 when the program was adopted, the same age as when payouts began. Social Security tax rates have two rates, depending on whether you are employed or self-employed. These rates have risen from 2% and 0%, respectively, to 15.30% and 15.3% today. Don't be fooled that you are only paying the 7.65% and that your employer is picking up an equal amount. Economics 101 will tell you that any cost an employer is paying on your behalf for benefits would equate to a higher take-home salary if they didn't have to pay the tax benefit.
Caught in the Middle. It is depressing for people of my generation (Generation X) and younger that we think Social Security will not be there for us even though we have paid into it for our parents' and grandparents' generation. Reforming Social Security, while politically painful, is important to people in their 30s and younger. While the politicians, on both sides, who do not want to touch this issue will likely have passed away in 30 years, there are plenty of younger citizens facing a bankrupt Social Security fund when they "retire". The only solution to this problem in the future, if we do nothing now, is to increase the payroll tax yet again on those working. And increased payroll taxes will not aid my finances or help grow the economy in my retirement years.
Leadership. It takes leadership to reform a system that will be insolvent in 30+ years. (2042 is the current insolvency date, according to the Social Security Administration). Increasing the interest rate on invested funds from the low US Treasury yields the fund currently receives would help. Allowing private investment accounts would help. The current rumor on the Bush plan would be $1,000 - $1,300 of private investment a year or up to 4% of the tax rate described above. That is a small amount, but a start. I will be disappointed if the Democratic Leadership Council (DLC) takes a hard-line position against reform. Now is a golden time to do it. I understand the parties' lack of trust with one another. However, Social Security, which affects every American, is too important to allow it to be controlled by petty politics on either side of the aisle.
I hope the DLC's present negative position is posturing and not an end-game solution. Until we see practical proposals from both parties, Social Security continues to remain a train wreck waiting to happen.