01:00 AM EST on Sunday, March 6, 2005

BY JAMES HOOPES

President Bush wants to fix the Social Security "crisis" by privatization, by having employees invest part of their current payroll taxes in investment accounts to fund their retirement.

Since those current payroll taxes are needed to fund benefits to today's retirees, the Bush administration has now admitted a fact that it glossed over during the campaign. The president's plan will require borrowing trillions now to solve a "crisis" that will not even begin to occur for another half-century!

The Social Security Trust Fund is solvent until at least the 2050s. Even then, to remain in the black Social Security needs a revenue boost equal only to about a fourth of what we're currently spending in Iraq.

The president's proposals are not really about fixing Social Security, but about his ideology of an "ownership society,' in which everyone, not just the wealthy, have a personal stake in financial capitalism.

Maybe he's got a good idea there, but he wants to implement it not by fixing, but really by beginning the abolition of the most popular and successful government initiative in American history. Social Security is the base on which in a few generations the later years of Americans have been transformed from poverty to comfort.

Social Security faces not a "crisis" but an eventual revenue shortfall. There's a much safer and more responsible way to fix it than borrowing trillions and adding to the Bush administration's already swollen deficits.

Make the Social Security payroll tax a flat tax. Right now a high earner pays a much smaller percentage of income to Social Security tax than low and middle earners. We should ask everyone to pay the same percentage of income to support Social Security.

In 2004, an employee earning $87,900 or less paid 12.4 percent of income (half paid by the employer) in Social Security payroll tax. A highly paid executive making $879,000, or 10 times that amount, paid only 1.24 percent of income in Social Security taxes. A CEO making $8,790,000, or 10 times that amount, paid only 0.124 percent, or less than one-eighth of 1 percent.

High earners pay a much smaller percentage of income to Social Security tax than low and middle earners because of the $87,900 ceiling on income subject to the tax. Removing that ceiling would make the Social Security tax flat and fair. Everyone would pay the same 12.4 percent of income (half from employers) to support Social Security.

Removing the ceiling will raise revenue. Under the present system, a high earner making $1,087,900 and a middle earner making $87,900 pay the same tax -- $10,900. Remove the ceiling so that the high earner contributes the same percentage of income as everyone else, and the Social Security system gains $124,000. That's because the 12.4-percent tax rate would be applied to $1,000,000 of currently untaxed income. For a really big earner making $10,087,900, the gain to the system would be $1,240,000.

Now is a good time to make such a change.

High earners have recently gained huge amounts in disposable income, thanks to President Bush's income-tax cuts in the high brackets. Instead of taking back those income-tax cuts, as John Kerry unimaginatively proposed during the election campaign, we should simply ask everyone to pay an equal percentage of income to support our country's single most-important domestic program, Social Security.

James Hoopes is Murata Professor of Business Ethics at Babson College and visiting Frances Willson Thompson Professor of Leadership Studies at Kettering University. He is also author of False Prophets: The Gurus Who Created Modern Management and Why Their Ideas Are Bad for Business Today.