June 3, 2004

June 3, 2004 | Commentary on Social Security

Pomp and Bad Circumstance

This month, my daughter Meredith graduates from high school. In the fall, she's off to college and her first real taste of independence. Unfortunately, one of the things that she faces in the real world is a bill for $100,000 to fix Social Security.

It sounds steep. But that $100,000 is what each family in the United States will owe in additional taxes if the program is to pay full retirement benefits over the next 75 years.

The reason for Social Security's problems is simple. Baby boomers didn't have enough children, and there will be more new retirees each year collecting benefits than there will be young people such as Meredith going to work and paying payroll taxes. Since today's Social Security benefits are paid directly from today's payroll taxes, once the ratio between workers and retirees reaches a certain level, the program will begin to run deficits.

That's why it is time for President Bush and Sen. Kerry to discuss this issue. Their positions on Social Security will certainly affect my family and my future. They should focus on that future rather than talk about who did what during the Vietnam War.

Social Security has plenty of money available to pay full retirement benefits to everyone who either has retired or is close to retirement. This isn't an issue for senior citizens. However, it is an issue for Meredith and for everyone else.

The Social Security Administration (SSA) says that starting in about 2018, the program will begin to spend more in benefits each year than it will receive in taxes. Once they start, those annual deficits will continue at least through the next 75 years, and probably well beyond that. And they will get very big, very fast. SSA says that about five years after they begin, those annual deficits will be larger than $100 billion a year and will continue to climb after that.

Social Security's past surpluses are gone. They were spent over the last 20 years for everything from roads to aircraft carriers. All that's left is a stack of IOUs that will have to be repaid by raising other taxes or cutting other spending. Those IOUs will be repaid -- they are in the form of government bonds, after all, and are a national promise -- but it will cost more to repay the Social Security trust fund than it would to repay the entire federal debt. And unfortunately, that carries the program only to 2042, about 10 years before Meredith will retire.

The nonpartisan Congressional Budget Office says economic growth won't solve this problem. That means we must do something to fix Social Security or leave a growing mess for our children and grandchildren to deal with. Doing nothing isn't an option, and each year that we delay, the eventual cost our children will have to pay goes up.

There are only three real ways to fix Social Security: cut benefits, raise taxes or make existing taxes work harder by allowing younger workers to invest some of them in personal retirement accounts. Raising taxes or cutting benefits means that Meredith and her generation will be paying much more for much less. It's not exactly the legacy I hope to leave my daughter. Some form of personal retirement account within Social Security at least gives her the opportunity to do better.

As a parent, my greatest desire is to leave the world in better shape than it was when I was Meredith's age. Social Security's troubles threaten that goal. One of the best graduation presents we can give our children is to begin a real discussion about Social Security's future -- then make some decisions and act. Our children may not fully appreciate it now, but in a few years, it will mean much more to them than any of the presents they get for graduation.

David C. John is a senior research fellow for Social Security at The Heritage Foundation.

About the Author

David C. John Senior Research Fellow in Retirement Security and Financial Institutions
Thomas A. Roe Institute for Economic Policy Studies

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