Imagine an America without Social Security. It’s hard to believe, isn’t it? But Social Security is failing, and according to most qualified observers, it’s already starting to happen. If I were a betting man, I would wager that unless something is done soon, the nation’s retirement program for seniors is a goner. The question is not “if” but “when.”
In 1998, Sen. Daniel Patrick Moynihan, D-N.Y., who was widely recognized as perhaps the Senate’s leading intellectual, proposed a plan for the long-term survival of Social Security.
The recommendations he made at the time included, among other changes, increasing the wages subject to the Social Security tax (FICA), extending Social Security coverage to all newly hired state and local employees, taxing the benefits paid to recipients, adjusting the cost-of-living percentage, reducing the amount of the FICA tax, and beginning to transfer a portion of the payroll tax into personal savings accounts.
Notwithstanding Moynihan’s credentials as one of the most liberal politicians in Congress at the time, his recommendations were widely criticized by many legislators, especially for his ideas about privatizing the system.
The problem is that, politically speaking, Social Security has always been the “third rail” of politics, and those who attempt to change it do so at the risk of ending their own political career.
The following is a brief review of the program’s history and its status:
» Social Security recently celebrated its 75th anniversary.
» In 1939, five years after Social Security was established, payments to families of workers who died and for the dependents of retirees, such as stay-at-home-spouses, were added to the program.
» Disability benefits for workers were added in 1956, and in 1965 Medicare was established.
» In 1974, welfare payments in the form of Supplemental Security Income (SSI) was established for low-income seniors and people with disabilities.
» The program is now paying out more in benefits than it collects in taxes, and the shortfall is expected to become permanent in 2017.
» About 23 percent of the program’s shortfall could be eliminated by raising the retirement age from 67 to 68, and almost a third of it would disappear if the retirement age were increased to 70.
» The so-called Social Security “trust funds” have been raided by the federal government, to the tune of $2.5 trillion. In short, there are no trust funds, and the government soon will have to borrow money in the public debt markets to cover its obligation to retirees.
» The Social Security Administration issues about 53 million checks to beneficiaries annually.
» Foreign workers who live in the United States have to work and pay taxes into the system for at least 10 years to qualify for Social Security benefits., just as U.S. citizens do.
» In 1950, there were 16 workers for every Social Security beneficiary; by 2015, there will be only three, and about 15 years later, in 2030, the ratio will be only 2.2 to 1. It doesn’t take a mathematician or a Ph.D. to see that the contributions of just 2.2 workers will not be sufficient to support one retiree.
So, what’s the solution? It’s to reduce costs, which can be accomplished either by raising the age for eligibility or reducing benefits, or some combination of both.
There is no other answer, and chances are those politicians who are courageous and patriotic enough to take the necessary actions will quickly be turned out of office, but they will have done the right thing.
Typically, whenever Congress is forced to deal with unpopular issues, they try to give themselves cover by appointing a commission to do their dirty work for them, which generally makes recommendations that the politicians are not courageous enough to make on their own.
Chances are that’s what will happen this time around. But whatever they may recommend and whatever “fixes” Congress may adopt, they will not be able to overcome the effect of the increasing the numbers of retirees who receive benefits, which is projected to double in the next 20 or 30 years, as the baby boomers reach retirement age. The number of retirees will roughly double and Social Security will go broke.
Ultimately, the government will be forced to keep Social Security solvent by printing enough money to continue making payments to the beneficiaries. However, the long-term effect of this will be to add inflationary pressure to the U.S. economy, with the eventual result that ongoing payments to the beneficiaries will be in depreciated currency.
The Social Security beneficiaries will get paid all right, at least ostensibly honoring the government’s obligation, but the money they receive will be worth far less than the dollars they paid into the system during their working years.
— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who has lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.