WASHINGTON - On its current path, Social Security is projected to run out of money by 2037, largely because of aging baby boomers reaching retirement. For the first time since the 1980s, Social Security will pay out more money in benefits this year than it collects in payroll taxes. The longer action is delayed, the harder it will get to address the program's finances.
Social Security faces a $5.3 trillion shortfall over the next 75 years, but a new congressional report says the massive gap could be erased with only modest changes to payroll taxes and benefits. Some of the options are politically dangerous, such as increasing payroll taxes or reducing annual cost-of-living increases for Social Security recipients. Others, such as gradually raising the age when retirees qualify for full benefits, wouldn't be felt for years but would affect millions. Many wouldn't affect current recipients, according to the report by the Senate Special Committee on Aging. Sen. Herb Kohl, chairman of the committee, said small "tweaks" are all that is needed to bolster Social Security's finances for future generations of retirees.
--Can tiny changes save Social Security? by Stephen Ohlemacher, Associated Press, as reported in msnbc.com (5.17.10)
This is not news. Not the fundamental conclusions, anyway. I remember concerns raised and similar prescriptions offered in the WSJ and other financial publications 20 or more years ago. And just a few years ago, there was another round of these observations, including a particularly good article in The Atlantic. Had the changes been made twenty years ago or even five or ten, the cost and impact on retirees would have been negligible. Even now, the effects would apparently be bearable. If frogs had wings...
But no one dared touch the "third rail" of retirement benefits or increase taxes. After all, we have an electorate with an exagerated sense of public entitlement, regardless of income level or status--an electorate that at the same time is often ungrateful, and dismissive or disapproving of the necessary size of the governing enterprise and the work of governing. And nothing has changed. If anything, the ideological polarization of today's poisonous political climate makes it more difficult than ever.
So what kind of "tweaks" are we talking about? Just what is the report suggesting? Actually, it makes no particular recommendation, but offers various possibilities, alone or in combination, which would provide an effective solution:
The entire $5.3 trillion shortfall over the next 75 years would be wiped out if payroll taxes were increased by 1.1 percentage points for both workers and employers. It would also disappear if Congress started taxing all wages, not just those below $106,800, said the Senate report, citing projections by the actuaries at the Social Security Administration.
On the benefits side, more than three-fourths of the shortfall would vanish if Congress reduced annual cost-of-living increases by 1 percentage point each year. Social Security recipients get annual increases based on inflation. This January, for the first time since automatic adjustments were adopted in 1975, there was no increase because prices decreased last year. About 23 percent of the shortfall would be gone if Congress gradually increased the age when retirees qualify for full benefits from 67 to 68. Nearly a third of the shortfall would disappear if the full retirement age were gradually increased to 70.
But the article made no mention of "means testing"--although I have to believe the study and report dealt with the possibility. Means testing is merely a measure for reducing or eliminating social security benefits for those who otherwise will have significant assets or income--means--in retirement. This approach reinforces the notion of social security insurance: although we all pay into it, we only receive payments from it if we do not already have significant retirement assets or income.
Although it would doubtless eliminate some or all of the social security benefit I now receive, I support means testing. I think it is reasonable and fair. I would also support lower cost-of-living increases, especially since there is evidence that the measure used has overstated actual inflation. And they could increase payroll taxes as a last resort. I would not raise the qualifying age further, not when employment is harder to retain for older employees, and very difficult to find if you are older and lose your job.
But even if legislation could be passed, even if a reasonable, acceptable cobbling together of these approaches would solve our intermediate-term funding problem, we will have done nothing to address the funding of the following period. The article:
One expert cautioned that adjustments designed to fully fund Social Security for only 75 years will almost certainly have to be revisited well before then. Here's why: In 15 or 20 years, the Social Security trustees will be looking at a new 75-year window, one that includes future shortfalls beyond the current 75-year horizon. Those shortfalls will have to be addressed years in advance to avoid dramatic tax increases or significant benefit cuts, said Kent Smetters, a professor at the University of Pennsylvania's Wharton business school. "If you only fix it for 75 years at a time, the same problem suddenly reappears every 15 to 20 years," Smetters said.
I know. Manana. Let tomorrow take care of tomorrow. Which is, of course, how we got where we are.
http://www.msnbc.msn.com/id/37195779/ns/business-personal_finance/
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