Assuming your not dead, you have probably heard a fair bit about the Social Security crisis. From the news and from the framing we know that Social Security is facing a looming crisis - in 2017, Social Security will "go into debt" and in 2041 it will be "bankrupt", and these points rarely seem to be in dispute.
To use the popular lingo, the republicans have successfully framed the issue in terms that will justify their actions, because if a program is in jeopardy, it is appropriate to take extreme steps - "We had to destroy Social Security to save it". Lets take a look at the "going into debt" and "bankruptcy" that is facing Social Security after the break.
Going into Debt
From the President's "Strengthening Social Security" page, we get the following insight:
Just 13 years from now, in 2018, the government will begin to pay out more in Social Security benefits than it collects in payroll taxes - and shortfalls then will grow larger with each passing year.
- By the year 2027, the government will somehow have to come up with an extra $200 billion a year to keep the system afloat.
- By 2033, the annual shortfall will be more than $300 billion a year.
- By 2042, when workers in their mid-20s begin to retire, the system will be bankrupt - unless we act now to save it.
Of course, we know that the presidential page is a little out of date, as the studies have been updated so that it is 2017 for the shortfalls to begin, and 2041 for the system to be "bankrupt". But let's look at what they are saying: "in 2017, the government will begin to pay out more in Social Security benefits than it collects in payroll taxes." Does that mean the program is going into debt? That for a long time, money has been flowing into the trust fund for a rainy day, and in 2017 the money will start flowing out? No, in 2017 the program will not be going into debt.
In 2017, the Social Security program will simply begin to call in it's IOUs that it has in the form of Treasury Bonds, Treasury Bonds backed by the full good faith of our federal government. Will this amount to a large amount of money that the federal government needs to pay back? Absolutely - and that is why in the presidential election of 2000, Al Gore spent so much time making a point about the "Social Security Lockbox" - because he understood, and Democrats (the fiscally responsible party) understood, that this was a very large IOU that we would need money in the bank to bay back. Unfortunately, in Jan 2001, Bush became the president and subsequently pushed large tax cuts that not only failed to jump start the economy, they also made it impossible to have a maintain a Lockbox for Social Security. So instead of having money in the bank to cover the money owed to the Social Security program, it will need to be pulled out of the tax revenues as they are needed. Is this going to be hard to bear? Probably, but this is the position that we are forced into by the bad financial decisions that have been made by this administration.
Bottom line, the Social Security program has been so successful that it has ben able to lend money out to the rest of the federal programs, and the current administration doesn't want to admit that the bill for the current party is coming due, and this administration doesn't want to pay the tab for the tax cut party that has been going on.
Going Bankrupt
In 2041, President Bush says Social Security will be "bankrupt", that the system will fail. What exactly does this mean. Well, we are given the impression that this means that our children won't be able to count on receiving any money in their retirement. Is this the case? No the true story is that Social Security will not be able to continue paying out at the current rate, but it will be funded at 80% of the current levels. Is this a federal program in failure? Not compared to the current federal budget - based on last years numbers with 2.4 trillion dollar budget and ~400 billion dollar deficit, all federal programs were only actually funded at 83% - the rest was borrowed.
The truth is that this program will not be failing, it will not be bankrupt. In 36 years Social Security will just need to either reduce its benefits, or it will need to borrow money - like every other federal program. And this is based on current projections that have been notoriously conservative - we have already passed through many deadlines for when the program was supposed to start to fail, yet it is still going strong. If these projections are overly conservative, the program could be fully funded for many years beyond 2041.
The Bush Solution
So we know that at least until 2041, the Social Security program will have money to fully cover its commitment. So what options do we have to fix the problem?
While Bush had previously stated that any fix to Social Security could not include new taxes or benefits reductions, his latest proposal says we should cut benefits to the middle classes by up to 50% in order to ensure that lower wage earners are provided their full benefits. According to some, this would make this a more progressive program, as the people who need the money most would get their money, while those that have more money wouldn't need as much help. However, taking into account the Machiavellian tendencies of the current administration, we need to recognize that this is an attempt to reduce support for Social Security by making the middle class receive fewer benefits, making them less personally vested in the program. As many others on DailyKos have pointed out, this would essentially make Social Security into a welfare program, and American's have not shown much interest in supporting welfare programs.
On top of that, Bush is demanding that any fix to Social Security includes the addition Personal [Privatized] Retirement Accounts. So three questions- what good, what harm and what is the point? Well, the good: there has been a lot of talk of having people have a sense of ownership of their own retirement funds. In addition, individuals will have the ability to invest retirement funds as they see fit, potentially increasing the amount of benefits they have during retirement, and maybe having money they can pass onto their family. The bad: we will need to borrow 1 to 2 trillion dollars to enable this plan. Money that is individually invested is higher risk, potentially leading to people losing their retirements to bad investments. But most importantly, the idea of personal retirement programs will further the erosion of the middle classes reliance on the current version of Social Security. Once people buy into the idea that they can't count on Social Security for their retirement, that they must depend on their "personal retirement account" how hard will they fight for Social Security?
Not very hard - the electricity would have been cut to the third rail.
The Real Solution
Social Security is supposed to be a program to provide security for all of society, a purpose it has been sucessfully fulfilling for 7 decades, and the problems it is facing is not a deal breaker, so any solution should be a nudge, not a structural reform. So, with that starting point, what are our options?
- Do nothing. This is not an eminent problem, and there are many more pressing issues before us as a country right now. Assuming we do nothing for 36 years, it will still work, just not as well, seemingly better than Bush's proposed fix.
- Recognize that people are living longer, and push back the age that full benefits are given.
- Remove the upper limit on the contribution to Social Security. Right now, the Social Security wage tax is a regressive tax - it takes a larger percentage from the people who earn the most. We can fix that.
- A gradual mix of the above that adjusts over time - this is a long term issue, so the fix can be adjusted as time goes on.
Social Security is a Democratic idea that we must continue to own - we can't let the republicans frame it to their advantage and our detriment.