Social Security Still In Need of Reform

Boston University Professor Laurence J. Kotlikoff warned against optimism yesterday in a Littauer classroom lecture, saying that this year's budget surplus may not avert a possible crisis in the Social Security system.

"The system is broken and it needs to be fixed--and fixed for good," Kotlikoff said in an interview after the lecture.

Kotlikoff told the audience of more than 30 that he believes the system should be privatized. In the lecture, he outlined a plan for a Personal Security System (PSS) that would replace the current system.

Unless Social Security is changed, Kotlikoff said, the system will be overburdened once the Baby Boomer generation begins to retire in the next decade.

"The United States has a long term fiscal problem...What [government policy makers] are likely to do is ignore these problems because of the official surplus [that was recently announced]."

Because the United States has a pay-as-you-go system that taxes today's workers to pay for the Social Security payments of current retirees, the government does not save money for future retirees.

Kotlikoff said this pay-as-you go system must be reformed in order to avoid a budget crisis in the future.

Other nations may face similar problems with their Social Security systems, Kotlikoff said, creating what he calls "[the] internationalization of fiscal child abuse."

Under Kotlikoff's proposed system, Social Security's Old Age Insurance payroll tax would be eliminated and replaced with contributions to PSS accounts.

Workers would contribute to PSS accounts and the government would match these contributions.

Instead of simply being given to the government, these funds would be placed in diversified investments until the investor turns 65 and the balances are annuitized.

Kotlikoff said that President Clinton's controversial statement that the budget surplus should go to Social Security is only a quick fix.

Audience members seemed intrigued by Kotlikoff's proposal, asking many questions. But when he asked for a show of hands for people who would support his plan, only a small number of hands went up.

Danish citizen Carsten Svendada, a Kennedy School student, said it was "striking to see that even though the welfare state is smaller [in the United States] than in Europe...the problems are so great."