The Only Way to Ruin Social Security
Reprinted from The Hill's Congress Blog
Let's start with the obvious. Social Security is a beloved and vital program that needs changes. Politicians are afraid to touch it, and some its staunchest supporters say we don't need to talk about it now because its problems aren't all that serious. The irony is that not talking about Social Security -- and not touching it -- is the riskiest choice of all.
If you've been following the debate over Social Security, maybe you've seen the year 2037 popping up regularly. That's when the Social Security system empties the assets from its Trust Fund, at least based on current projections. In 2037, Social Security will only be able to pay 78 percent of promised benefits, not the full amount people are expecting (http://www.ssa.gov/OACT/TR/2010/tr2010.pdf).
It seems strange to us, but some people use this projection to argue that the situation with Social Security isn't so dire, and that we shouldn't be discussing it in the context of debate over the country's massive deficits (including columnist Bob Herbert, http://www.nytimes.com/2011/01/25/opinion/25herbert.html, or http://blog.aflcio.org/2010/11/09/deliberate-distortions-create-false-sense-of-urgency-for-social-security-cuts/). Some argue that any discussion of Social Security's finances is just a stalking horse for a radical conservative plan to get rid of the program in favor of private accounts.
But there are multiple reasons to be alarmed by these numbers and multiple reasons to start talking about how to stabilize Social Security's funding now, not later:
Reason No. 1: "Having money" in the Trust Fund isn't as reassuring as it sounds.
For decades now, Social Security has been running a surplus, and the government has been using the extra revenue to pay other bills and avoid raising taxes. It's been putting special Treasury bonds into the Trust Fund in return. The government is obligated to pay the $2.6 trillion in special Treasury bills -- no doubt about that. That's only fair. The people who have been paying into the Social Security system for decades will get their checks. Unfortunately the Congressional Budget Office says Social Security will need to start dipping into the Trust Fund this year, and the money to cover the Treasury bills (estimated to be some $600 billion over the next decade) has come from somewhere. Since the government doesn't have the cash on hand, it will need to cut other spending, borrow even more money, or raise other taxes. This means there'll be even more pressure on the budget.
No. 2: Whatever we do to stabilize Social Security will work better if we do it earlier, and don't wait until the last minute.
If you believe the best solution is for higher income workers to pay Social Security taxes on more of their salaries (In 2011, Social Security taxes stop when your income hits $106,800), then it's better to start while most of the huge baby boom generation is still working and in the peak of their earning years. If you believe in trimming benefits for affluent retirees or pushing back the retirement age, then it's much better to let people know what to expect early, while they have time to make adjustments in their own planning. When it comes to retirement, you can put most of us into the "please don't surprise me" camp.
No. 3: A 20 percent drop in Social Security payments would be devastating.
The idea that Social Security could still pay 78 percent of what it's promised to pay shouldn't comfort anyone. Using current numbers as an analogy, the average payment would fall from around $1,200 a month to less than $1,000 -- that's $12,000 a year. (http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/). Since low-income seniors get about 80 percent of their income from Social Security, the effect on them would be disastrous. Social Security makes up more than half of the income for seniors overall, so middle-income retirees would take a hit as well.
No. 4: 2037 isn't that far away.
True, it's not right around the corner, but as the saying goes, time flies. Most people can envision the time a couple of decades away when their small children finish college or when they finally pay off their mortgage. Most of us, in fact, make all sort of financial decisions with these future events in mind. And realistically, the country will start feeling the pinch much sooner than that, as the government works to come up with the money needed to repay the Social Security Trust Fund.
So if you care about Social Security and want it to remain strong, here's the dilemma: Are we going to start making the changes that will put it on a sound financial path, or are we going to keep procrastinating? Being seduced by the juggling act of trust-fund accounting carries real risks. If we let this problem go for another decade, all that's going to do is to let a relatively manageable problem grow into a terrible one. Right now, we can still implement relatively acceptable fixes, such as raising taxes on higher income workers or recalculating benefits for future retirees to protect lower-income Americans while asking more of Americans with means. Changes like this could take this problem off the table for a generation. But if we convince ourselves that the problem isn't so serious and wait until 2037 is breathing down our necks, the fixes will be big, jarring, and probably unfair.
So are we going to let 2037 be the year we break our promise to Americans who have worked hard for decades and counted on this country's sense of fair play? If we do, 2037 will be the year Americans should hang their heads in shame.
© 2011 Scott Bittle and Jean Johnson, authors of Where Does the Money Go? Rev Ed: Your Guided Tour to the Federal Budget Crisis
Scott Bittle, author of Where Does the Money Go? Rev Ed: Your Guided Tour to the Federal Budget Crisis, is the executive editor of PublicAgenda.org, twice nominated for the Webby Award as best political site. He is also an award-winning journalist.
Jean Johnson, co-author of Where Does the Money Go? Rev Ed: Your Guided Tour to the Federal Budget Crisis, is the Executive Vice President of Public Agenda, has more then 20 years of experience understanding public attitudes on a broad range of issues. She has also written for various publications such as USA Today, Education Week, and the Huffington Post. .