Social Security's trust fund will be depleted by the time today's newborns graduate from high school. Today's lawmakers know it, but they have yet to do something about it.
Recently, the AARP, the Heritage Foundation, and the National Committee to Preserve Social Security and Medicare participated in a public discussion of Social Security in Pueblo. The goals of that program were: 1) to explore perspectives on the future of Social Security; 2) to discuss potential policy implications, and 3) to encourage lawmakers to take a position with respect to the options available.
This is important stuff. Social Security is the largest federal program. With costs running at about $1 trillion annually, it consumes one quarter of the federal budget. And while payroll taxes collected from current workers finance the vast majority of benefits received by today's seniors, the program is already running sizable cash-flow deficits.
In 2015, the most recent year for which data are available, Social Security's cash-flow deficit amounted to $70 billion. This deficit is the difference between what the program collects in taxes from workers and current benefit recipients, and what it is paying out in benefits to retirees and their families.
And this deficit is growing rapidly. Every day, 10,000 baby bombers retire, and every day, fewer new workers enter the work force. The ratio of workers (those paying into the system) to beneficiaries (those collecting from the system) has shrunk from 16:1 in 1950 to fewer than 3:1 today.
It is true that Social Security amassed about $2.8 trillion in special issue treasury securities from payroll tax surpluses collected for about two decades up until 2010. But the painful and enraging truth is that Congress spent all the money and borrowed more on top of it.
Today the assets remaining in the Social Security trust fund are essentially IOUs—unfunded obligations that American taxpayers are expected to pay off now and in the future. And they are just part of the $19 trillion national debt.
And here’s another cold, hard truth: even if Congress had secured the money paid in Social Security taxes in a lockbox and doled it out only to retirees, today's seniors have been promised far more in benefits than lawmakers ever made provisions to pay for. The unfunded obligation tops $14 trillion over the 75-year horizon.
In the same vein, Social Security's current and growing deficits are already adding to the national debt. The Treasury cannot create money out of thin air, but it can borrow on the credit of the American taxpayer. And that's exactly what's happening today to cover the Social Security shortfall.
There are several ways to fix this crisis, but none is completely painless. Congress can raise the retirement age, switch to a less generous benefit computation formula, hike taxes to bring in more revenue, or adopt some combination of these approaches. Yet every one of these options represents a cut of some sort to someone. Lawmakers either cut what comes out of the program or they cut the take-home pay of workers to increase what flows in.
The time has long passed for lawmakers to fundamentally change the program such that gains from privatizing a part of Social Security will make all workers better off. Moving more of Americans' retirement resources toward private investments in economic assets that produce real gains over time would certainly improve workers' plight substantially—despite short-term market drops and losses. However, if program reform is contingent upon making every single person affected by Social Security better off, we are all out of luck.
It is time that lawmakers and the public remove the rose-colored glasses and take a good, hard look at today's fiscal realities. Social Security, as currently structured, is unsustainable. Emergency “patches” to shore up the program for another election cycle or two is no solution at all. Kicking the can down the road simply put the financial security and economic opportunity of millions of Americans at greater long-term risk.
Reforms should preserve Social Security's promise of keeping seniors and individuals with severe disabilities out of poverty. That's a realistic goal we can meet without burdening younger generations with undue debt and tax burdens. Subsidizing decades-long retirements for all American workers regardless of need? That, we simply cannot afford anymore.
This commentary first appeared in The Pueblo Chieftain and has since been up-dated.