The Model Needs Repair

COMMENTARY Social Security

The Model Needs Repair

May 20th, 2010 1 min read

Former Senior Research Fellow in Retirement Security and Financial Institutions

David is a former Senior Research Fellow in Retirement Security and Financial Institutions.

The sooner that we fix Social Security the better. We are fooling ourselves if we delay. Note please that I say "fix" and not "end." Despite others’ rhetoric, no responsible policy person wants to end Social Security.

The problem is simple: As baby boomers age, there will be more retirees collecting benefits and fewer workers paying taxes. We have promised younger workers higher benefits than we can afford to pay. Starting in 2017, less than 10 years from now, the program will begin to pay more in benefits than it receives each year from payroll taxes. Annual deficits will quickly reach several hundred billion dollars and never end.

Who says so? Social Security’s nonpartisan, professional actuaries, the nonpartisan Congressional Research Service, Bill Clinton’s White House budget agency, and many others. Since 1983, Americans have paid more in payroll taxes than Social Security needed each year for benefit payments. Unfortunately, Congress spent the extra money on everything from roads to aircraft carriers. All that is left are government bonds that, like all IOUs, have to be repaid. Taxes that now pay for other programs will be sent to Social Security as those bonds are redeemed. Other programs will either get cut or taxes will increase.

How do you fix it? There are three ways: Raise taxes, change benefits for future retirees, or increase individual private retirement savings. All three have very real and painful side effects. For instance, raising taxes will reduce both economic growth and employment. Since this is a spending problem, changing benefits and increasing saving would be better ways to go.

I want my daughters to have the same retirement security that Social Security helped their grandparents to achieve. Delay just makes fixing Social Security harder and more expensive. It is not a responsible legacy to leave our children and grandchildren.

David John is a Senior Research Fellow at The Heritage Foundation

First appeared in Bloomberg Business Week