Treasury Secretary Henry Paulson labeled Social Security "financially unstable" this week in response to the annual release of the trustees' report detailing the program's funding and projected shortfalls. Paulson is calling for major reform, and the White House's prescription is private accounts. But some who study Social Security argue that not only is major surgery unnecessary but the benefits program for the aged is getting along just fine, thank you.
Last year, Social Security brought in $200 billion more than it spent, and the trust fund surplus is projected to hold out until 2017, when the government must start paying back what it borrowed from the fund. By 2041, Social Security will be able to pay out 78 percent of benefits promised to retirees. That's not good, but it's not that bad, either. "Social Security is in good shape," argues Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare. "We got a good healthy surplus until 2017, and it's not like everybody drops dead. People continue to pay into the fund."
Not only are people going to continue to pay into the fund, but more people are paying into the fund than previously estimated. The catch: Those people are frequently illegal immigrants fraudulently using a Social Security number. Moral and legal issues aside, the illegal workers are paying their taxes. They are also frequently young, which means they are contributing more to the social services system than they are taking out.
Kennelly argues that the Bush administration paints a dire picture of the Social Security program to scare people into believing that private accounts—investing a portion of your Social Security benefits in the stock market—is the only way to save the system. "It makes solvency worse when you take money out of Social Security and put it in private accounts," she says.
Ronald Lee, director of the University of California - Berkeley's Center for the Demography and Economics of Aging, is less sanguine than Kennelly, but he says Social Security's future shortfalls are "a manageable problem that could be met with raising payroll taxes." That's a tough pill for many to swallow, but so is another alternative: cutting benefits. New accounting of the contributions of illegal immigrants helps ease the pain, but only modestly. Still, in Lee's view, Social Security is relatively sound for two simple reasons: The United States has a higher birthrate than other industrialized countries, which means a big workforce to support the elderly. And, Social Security doesn't offer very much. "The size of the problem is smaller than it would be if we had a more generous system," Lee says. A relatively high retirement age that looks likely to increase even further also helps. "I think we can afford the kind of fixes [Social Security] needs," he concludes, "unlike other industrialized countries, which are in more serious trouble."