Welfare program ills left unaddressed
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Martha Ozawa, Ph.D. Social Security Reform/Earned Income Tax Credit/ Poverty of Women and Children |
A leading scholar on our nation's social welfare programs, Martha Ozawa, Ph.D., has been tracking the positions of the two major presidential candidates on Social Security and Medicare.
"The issue of entitlement spending is like a ticking time bomb, and neither candidate has offered any proposals that will seriously address the problem," she said.
According to Ozawa, the cost of a transition to partial privatization of Social Security, as proposed by Gov. George W. Bush, will be about $1 trillion. "That money would have to come out of general revenues either in the form of straight transfers to the trust funds or in the form of a loan," Ozawa said.
As for privatization, Ozawa notes, the idea "was conceived by economists who have great faith in higher rates of return from the stock market." But Ozawa believes privatization may create problems down the road. And the effects on individual investors will not be uniform.
"The economic conditions may be different for different generations, giving different rates of return to different cohorts of retirees," she said. "Also, the rates of return may be different for different people within the same cohort, depending on their investment performance."
Although Vice President Al Gore's plan looks less risky, it is not much better that Bush's proposal, Ozawa said. "Gore wants to put a 'lockbox' on the Social Security trust funds by increasing the amount of trust funds through the infusion of general revenues. "To make this possible, he would pay down the debt so he can come up with extra money to inject into the trust funds, come 2037, when the trust funds will be exhausted," Ozawa continued. "This way, he believes that he can prolong the day of reckoning to 2050." Ozawa notes, that "Furthermore, Gore has not offered any plan to solve the financial problem in Medicare."
According to Ozawa, whether there will be enough money in the trust funds is not the major issue. Rather, the major issue is whether this country can divert an increasing proportion of the GDP to support the elderly through Social Security and Medicare.
Ozawa offered some dire statistics to illuminate the impending crisis. Spending on Medicare and Social Security as a percentage of GDP will double in the next few decades, she observed. "Life expectancy will continue to increase dramatically as a result of healthier lifestyles and advanced medical technology," Ozawa noted. "When Social Security began, there were 16 workers contributing to the system for every beneficiary that drew benefits. Now the ratio has dropped to about 3:1.
"And, because of a combination of low birth rates, longer life spans, and early retirement ages, that ratio will drop to about 2:1 over the next few decades. No system can survive such drastic demographic and cultural changes."
So, if neither candidate's solution will ameliorate the problem, what does Ozawa propose? Her recent research advocates a solution based on the concept of "proportionality." Briefly, such a solution would entail freezing the proportion of "elderly" in our society at 12.4 percent -- the current percentage -- by increasing the retirement age gradually as life expectancy rises.
"If life expectancy rises, the age at which one becomes eligible for Social Security and Medicare should also rise automatically," Ozawa said. "We could see a 32 percent decline in the ranks of the 'elderly' from the projected 61 million to 41 million in 2025."
This decline in the number of people eligible for benefits would restore "proportionality," and, therefore, solve the fundamental problem of a pay-as-you-go system. "I realize that such a solution may seem cold, methodical, even inhumane," acknowledged Ozawa. "But it may be the best and least risky way to solve the problem."
However, Ozawa does not think the politicians will heed her advice. "We need leadership from our public officials; we need people who will listen to academic experts and not just pander to voters," she said.
Ozawa is the Bettie Bofinger Brown Professor of Social Policy at the George Warren Brown School of Social Work at Washington University in St. Louis.
