What About Social Security?

With all the heat over the health care issues, the issue of Social Security is being ignored. That is a shame, because Social Security presents us with a far more pressing problem than health care.

Because of the current recession, it now appears that the point at which SS revenues become less than its benefit payments has advanced from 2017 as reported by the Government Accountability Office to 2012 or sooner. That means that SS is basically broke, because there is no money in the SS Trust Fund.

Benefits will have to be paid out of general revenue after that. Congress has spent the Trust Fund on other things. And there is no fiduciary responsibility for the Trust Fund as there would be for private ones. How clever.

According to the GAO in 2005( go there, it is a great report), it would take $12 Trillion dollars paid in now to fully fund future SS benefits at current levels. Try that on for size.

As a result, Social Security needs some real change, not talk. There are several ways to cure the problem and make sure that our children have some semblance of retirement security.

We could do what most private companies have done, and what most state and local governments are going to have to do. That is, go to a defined contribution plan, as opposed to the current defined benefit plan we have.

I suspect that will be a non-starter for Democrats, because the defined benefit plan has a large amount of wealth redistribution in it. That was why they were so adamantly opposed to Bush's partial privatization, which was really making part of SS a defined contribution plan.

On to other possibilities.

We could raise the tax on wages. An increase of 15% in payroll taxes today would do it. If we wait until 2041, it would have to be 41%. Of course, with the latter date, general revenue (with its tax stream) would have to finance it until then. I do not favor this. I think it would be unfair to our young people.

We could raise the cap on wages taxed. This would require those with a higher income to pay much higher taxes, but get higher benefits, though far from dollar for dollar because of the redistributionist benefit schedule. Now the maximum wage taxed is $102,000 per year.

We could change the benefits, either by reducing them significantly or by delaying the payment of them.

Both of those benefit changes would have to be phased in over a decently long period for it to be fair to those already receiving SS or nearing eligibility. Probably the way they extended the eligibility date to age 67 may be appropriate.

Delaying the benefits may be the best way. When SS was set up, the age of 65 was very old. The primary reason SS is broke is that people receiving benefits are living much longer than we used to, and so each person receives far more in benefits than planned.

The quite simple way to solve this problem is to extend the eligibility date as the life expectancy increases.

It is imperative that Congress addresses this issue. It is extremely difficult politically to do so, but there is also not much time. Support for Social Security is beginning to evaporate as more and more young people become politically active. Few of them believe that they will ever receive SS, but realize that it is they who are paying for what their elders are getting.

They understand that this is terribly unfair....and it is.

This week, in a poll done by Rasmussen, he found the following:

"Forty-nine percent (49%) of U.S. voters say working Americans should be allowed to opt out of Social Security and provide for their own retirement planning."

In addition:

"Sixty percent (60%) of voters are not confident that the Social Security system will pay them all promised benefits during their lifetime, with 36% not very confident and 24% not at all confident."

This does not bode well for the future of Social Security, and may be signalling a widening generational dispute.

If support is to be maintained for SS, then it must be made fair to everyone, and that includes sacrifices from us all.

This is a very emotional subject, and has been the source of a lot of demagoguing by politicians on both sides of the issues. It is time for that to stop. There has to be room for responsible compromise on the various choices. Some combination of the above will probably do the job.

Both sides of the issues need to sit down and work something out. The hyperpartisanship we have seen in Washington the last few years is not getting the job done, and will not.

Both sides had better realize that the folks back home are getting impatient. We want a government that works for all of us. But not one that is intrusive into our private lives.

That means that the "my way or the highway" attitudes by our political class has to be discarded, and the pols need to get to work.

Or else.