WHERE CANDIDATES FEAR TO TREAD

By Michael Kramer

THE GENE THAT CAUSES OTHerwise normal people to seek elective office is encoded with a warning: Don't mess with Social Security. Now, suddenly, the opposite is becoming true. So many average citizens are aware that the system could be bankrupt within 25 years that politicians who deny the problem risk losing their credibility. In fact, the greatest philosophical shift in Social Security's 60-year history is actually in the offing--a move toward privatizing at least a portion of the system so that workers could establish individual retirement accounts and invest in stocks and bonds. Still, swift action is unlikely. It's an election year, after all. Bill Clinton and Bob Dole will surely avoid supporting a solution without knowing how voters will react. But a loud and necessary conversation about the future financial security of all Americans will finally begin this week.

The impetus for change is coming from the Advisory Council on Social Security, a group appointed every four years to monitor the system. A formal report isn't due until May, but Senate hearings on the council's recommendations begin this week anyway. Split on the specifics, the 13-member panel is nonetheless unanimous on the need for radical change. "If we stick to the plain old pay-as-you-go system, we'll have to raise taxes or cut benefits," says the group's chairman, Edward Gramlich, dean of the University of Michigan's public-policy school. "Either way, the system becomes an even worse deal for young people."

Six panelists led by former Social Security Commissioner Robert Ball believe the expanding elderly population can be best protected if the government invests up to 40% of the system's funds in stocks, which have historically yielded a return of about 10%, compared with 6% from Treasury securities, the current repository of Social Security money. A second group of five panelists, including Sylvester Schieber, a Washington pension consultant, favors a system similar to Chile's. They would allow workers to create personal savings accounts funded with five percentage points of the 6.2% of paychecks currently paid in Social Security payroll taxes. The same split would apply to employer contributions, but the employer's 5% would finance a flat Social Security benefit of about $400 a month in current dollars. The remaining two panelists, including chairman Gramlich, would gradually scale back benefits and create mandatory retirement accounts with a new 1.6% contribution on top of the current payroll tax.

The Schieber scheme would spawn significant transition costs requiring new taxes, such as a 1% sales levy, and deficit financing that could grow to $1.2 trillion over 40 years. All three solutions would create different winners and losers. For example, the first plan would favor workers born before 1965. Despite such wrinkles, two factors promise change--the awareness among young voters that the current system will fail them and the prospect of several hundred billion dollars pouring into the stock and bond markets each year. In fact, a massive securities industry lobbying effort has already begun, and at least one investment house is devising new financial instruments that it claims will yield a guaranteed minimum return--just what Congress might require if Social Security were even partly privatized.

The Clinton Administration, which would prefer that the coming debate be stillborn, is readying a mushy response defending the current system's "dependability." Yet the possibility of partial privatization won't be ruled out peremptorily. (Clinton gets money from Wall Street too.)

Bob Dole has been intimately involved with Social Security for two decades and has shown considerable courage. In 1985 he had the guts and skill to steer through the Senate a one-year elimination of cost-of-living increases, a deficit-reduction measure later blamed for the G.O.P.'s loss of the Senate in 1986. Yet last summer, when I asked him if leadership didn't demand that he at least remind seniors that they get far more out of Social Security than they pay in, Dole said, "I'm not gonna tell them that. There's something called suicide, you know." To deal with the obvious solvency questions, Dole mused about a means test for benefits and an increase in the retirement age but signaled clearly that he wasn't eager to risk burning himself again.

Yet "fixing" Social Security by permitting stock investments would be less politically painful than alternatives like means testing. So it's hardly surprising that in February, Dole spoke of the "possibility," of "something that lets people, say, below 45, maybe opt out of Social Security. But it won't be easy."

No it won't, but the change in the landscape is already remarkable. In 1976 President Ford scored mightily when he blasted his Republican primary challenger for merely talking about the "most extreme and irresponsible blueprint for back-door socialism that I ever heard." Ford's challenger was Ronald Reagan--and all Reagan had done was point out that "some economists" had suggested the system might be saved if Social Security funds could be invested in the stock market, exactly the same "fix" being proposed today.

--With reporting by Ann Blackman and Jeffrey H. Birnbaum/Washington and Tom Curry/New York

With reporting by ANN BLACKMAN AND JEFFREY H. BIRNBAUM/WASHINGTON AND TOM CURRY/NEW YORK