Sunday, March 20, 2011
A reader wrote recently to ask for help in understanding the heated debate over Social Security.
Is the national pension plan part of the federal deficit problem, or isn’t it? Is the program heading for bankruptcy, or is it sound?
One side, retired attorney Arthur Armstrong noted in his e-mail, “asserts that we have a real problem, to which Social Security is a major contributor. But (the other side) states that there’s no problem with Social Security. What’s a citizen supposed to believe?”
A good question. As an issue, Social Security is a little like Israel: Different sides interpret the same information, and sometimes the same words, very differently. But here’s a stab at laying out the unshaded facts.
Social Security hasn’t been part of the federal deficit since 1984, the last time its finances were reformed. But it’s still part of the federal government’s overall fiscal problem, and, if major adjustments aren’t made, Social Security funds will run short by the time today’s 30-year-olds retire.
From 1984 until last year, Social Security collected more in taxes than it paid out in benefits, and that surplus — the Social Security trust fund — has been invested in federal bonds. (Some skeptics deride those as mere IOUs, but they’re not much different from 10-year Treasury bills; the federal government has a legal obligation to pay them back.)
But last year, partly because of the recession and partly because a swell of baby boomers is starting to retire, Social Security collected less in taxes than it paid out. That will happen again this year and for every year in the foreseeable future, according to projections by the Congressional Budget Office.
That doesn’t mean Social Security is in immediate trouble. The program merely has to redeem some of the IOUs in its $2.5-trillion trust fund. But it’s a problem for the federal government, which has to come up with that money from somewhere else — and at this point, that will mean new borrowing.
So, that’s the short-term budget issue: Social Security is about to start calling in its markers from the federal government, which will put additional strain on the budget.
The long-term issue is that the Social Security trust fund — the sum of all those surpluses since 1984, plus interest — is projected to run out of money in 2037. That’s not as long from now as it sounds; if you’re 40, you’ll be reaching retirement age of 67 about then.
What happens in 2037? If nothing is changed, Social Security will have to cut benefits by an estimated 22 percent to stay within the revenue it collects in payroll taxes. But nobody wants that to happen.
And that’s where the debate comes back to “political philosophy.”
Liberal Democrats revere Social Security as the cornerstone of the social safety net, point out that benefits aren’t overly generous (currently less than $13,000 a year on average), and say the problem could largely be solved by eliminating the income ceiling on Social Security taxes. (Currently, the tax is paid only on the first $106,800 a taxpayer earns in a year.)
Conservative Republicans hate the idea of increasing taxes, so they look for other ways to solve the problem — without, however, cutting benefits that retirees are receiving now, since that would be political suicide. Some, like Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, have proposed an entirely new system for the next generation based on individual investment accounts instead of one big shared trust fund.
And, in the middle, a lot of politicians — including President Obama — are looking for some kind of compromise fix.
Their starting point, at the moment, is the report of Obama’s debt commission, chaired by former GOP Sen. Alan Simpson of Wyoming and former Bill Clinton aide Erskine Bowles. Simpson and Bowles proposed raising the payroll tax on high-income earners, raising the Social Security retirement age very gradually to 69, adjusting the formula for cost-of-living increases in benefits and increasing benefits for low-income retirees.
Obama didn’t endorse any of the Simpson-Bowles proposals, but he didn’t reject any either. Instead, in his budget message, he called on Congress to “come together now, in bipartisan fashion, to strengthen Social Security for the future.” Obama rejected “privatizing” the system or “slashing” future benefits, but said “all measures to strengthen solvency will be on the table.”
Senate Budget Committee Chairman Kent Conrad, D-N.D., Sen. Tom Coburn, R-Okla., and others are working on a proposal that would take all of the debt commission’s recommendations (not only those on Social Security) and write them into law. The idea would be to strike what Conrad has called a “grand bargain” to persuade Democrats to accept spending cuts they don’t like and Republicans to accept tax increases they don’t like.
But they’re a long way from agreeing.
Doyle McManus is a columnist for The Los Angeles Times. Distributed by McClatchy-Tribune Information Services.