Unless swift and decisive action is taken, this country will soon face an enormous disaster.
Social Security affects nearly all citizens in an important way. Yet, it will face a large budget shortfall in about 10 years under current rates of taxation and benefits.
However, as the 2004 presidential race heats up, this serious dilemma is getting surprisingly little attention. There may not be any solution to the problems inherent in the Social Security program, but taking action soon can at least minimize the damage that the projected shortfall will create.
The fundamental problems faced by Social Security are easy to understand. The revenue raised by the Social Security component of the payroll tax (and the equivalent tax on the self-employed) exceeds program expenditures, resulting in a surplus. However, sometime between 2013 and 2018 (estimates vary) this situation will reverse itself and there will be a budget shortfall. Assuming current tax and benefit levels, this shortfall will continue for decades due to the retirement of the \baby boomers.""
It is likely that the current payroll tax will never be able to pay for current benefit levels again because the benefit levels assume an ever-growing population and population growth in this country has stopped. This means the ratio of workers paying into the system to retirees drawing benefits from it will continue to fall. Today the ratio is 3.3 to 1. By 2031 it will only be about 2.1 to 1. Most estimates suggest that for the current level of benefits to be maintained after the shortfall occurs, the Social Security payroll tax would have to be increased from 12.4 percent to 18 percent. Some estimates put the size of the necessary increase much higher. Increases of this magnitude will likely be both politically and economically unfeasible.
There has been much discussion of what has been done with the Social Security surplus. The facts are simple and grim. Instead of saving the surplus, the government has spent them and established a ""Trust Fund"" consisting of specially issued government debt equal to the value of the spent surplus. The fund will do nothing to solve Social Security's problems because it does not consist of any real assets. To redeem the debt, the government would have to raise the money that it has spent either by increasing taxes or by cutting spending (exactly what it would have to do even if there was no ""Trust Fund"").
None of the many proposed remedies to the problems posed by Social Security is both workable and pleasant. Those that are plausible involve reducing benefits. We must face the reality that without enormous tax increases, spending cuts or still greater deficit spending, the current level of benefits cannot be maintained. By acting quickly we may be able to avoid any sudden reductions. We can gradually reduce benefits with the goals of avoiding a major shortfall and of eventually ending what will otherwise become a disastrous program. We should affect the reductions by slowly increasing the age at which one begins to receive benefits and, maybe after a decade, making the formula used for calculating new retirees' benefits less generous.
Unfortunately, few of the presidential candidates have the courage to take this unpopular but realistic view. The leading Democratic candidates' Web sites hardly mention the problem. Joseph Lieberman suggests some vague plan of reducing spending to ""ease the strain on Social Security."" Howard Dean pledges to ""[a]ssure that Social Security and Medicare are adequately funded to meet the needs of the next generation of retirees"" without explaining how he intends to do so. Dick Gephardt blasts Dean for allegedly planning to raise the retirement age without proposing any plans of his own. Bush's old idea of investing Social Security funds in the stock market does not appear to be a very good one. There are no funds to be invested since the system is already facing a shortfall. If we are to avoid catastrophe, our politicians need to start getting serious about Social Security reform. The problem won't just go away. The sooner we act, the better.
