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    WAR COSTS WORSEN SOCIAL SECURITY ILLS

    BY TONY PUGH
    10/19/2001

    WASHINGTON -- New spending on the war against terrorism is adding to worries about the long-term financial health of Social Security.

    The concern threatens to distract a White House commission on Social Security created by President Bush to weigh options for revamping the Social Security program. The panel strongly favors allowing individuals to invest a portion of their Social Security payroll taxes in stocks and bonds.

    A projected $52 billion budget surplus that would have provided a cushion for the Social Security program was pared last week to a $10 billion deficit, due largely to tax cuts and lower projected tax revenue. The full costs of Bush's economic stimulus and terrorism recovery packages have yet to be added in.

    At a Social Security panel meeting on Thursday, co-chair Richard Parsons, chief operating officer of AOL-Time Warner, said neither terrorism nor other "day-to-day" crises should affect the commission's final recommendations, which are due this fall.

    Peter Orszag, senior fellow for economic studies at the Brookings Institution, a Washington, D.C., think tank, and others, said the revenue shortfall will inevitably make it harder to win public support for privatizing Social Security.

    "The easiest way to finance contributions to private accounts is to leave the current structure alone and use the general revenue (surplus) money," said Orszag. "But now there's no money left."

    Social Security is the nation's largest benefits program and will pay out about $400 billion this year to about 45.4 million people.

    The pending retirement of 79 million baby boomers born between 1946 and 1964 and declining tax revenues from a shrinking workforce have already combined to place the program in jeopardy.

    Government officials estimate that beginning in 2016, the program will be paying out more in benefits than it takes in from payroll taxes. It is projected to be insolvent by 2038.

    Because of the new budget deficit, the commission will have to lean more heavily on benefit reductions to finance any privatization plan, said Hans Riemer, chairman of the 2030 Center, a Washington, D.C., public policy organization focused on young adults. That "will send opposition to the plan through the roof," Riemer said.

    Paul Beckner, president of Citizens for a Sound Economy, a fiscally conservative advocacy group, said new federal spending "could lead to serious problems for Social Security." But Beckner, a proponent of privatizing, concluded that "if people were allowed to own their own retirement through personal retirement accounts, the insolvency of the Social Security system would not even be an issue."

    Without changes, benefits would have to be cut or payroll taxes increased in order to keep the program afloat. But neither proposal has broad political or public support.

    by TONY PUGH on 10/19/01.