Boomer burden
The debate is joined over reforming Social Security
As the debate over Social Security reform heats up, you're likely to be blitzed with all manner of headache-inducing charges and claims, plans, and numbers. The early skirmishes have already begun. President Bush argues that "the crisis is now" for Social Security and that the 70-year-old retirement benefits system desperately needs privately owned investment accounts and perhaps other unspecified changes to remain viable. The president's reasoning is simple. There were 42 covered workers for each Social Security beneficiary when the program began in 1935. Now there are just over three workers per beneficiary and falling. In coming decades, all those retired and longer-living baby boomers will be taking money from the system far faster than generation X-ers and Y-ers can replenish it.
Yet there are many in Washington who think the president is disingenuously alarmist. "This is a completely manufactured crisis," says economist Mark Weisbrot of the Center for Economic and Policy Research, echoing a view held by many Democrats and their allies. "We shouldn't do anything for a while," he says. "It's dangerous to make benefit cuts and other dramatic changes based on false information."
In the middle of the heated debate are many analysts, like Robert Bixby, executive director of the pro-balanced-budget Concord Coalition. Bixby says the White House is "correct in fostering a sense of urgency" and thinks private accounts, in which individuals would invest a small portion of the payroll taxes they now pay into the system in the stock and bond markets, could be part of the solution. The calculus: that higher expected returns in the market would mean less is needed in contributions to keep paying benefits. But he also worries about borrowing $1 trillion to $2 trillion to support Social Security as private accounts are being phased in. And there's also the question of higher administrative costs if individuals churn their accounts.
But don't despair. To help keep your Excedrin moments to a minimum, here's a guide to the major approaches to reform:
Doing nothing--at least for now. The go-slow crowd argues that for the next four or five decades, the Social Security Administration expects to be able to pay 100 percent of promised benefits to retirees, although in 13 years or so it will need to start cashing in the federal bonds that have accumulated in its trust funds to do that. In recent decades the trust funds have taken in far more in payroll taxes than they paid out in benefits. That surplus is then lent to the regular federal budget to help pay for things like defense and education, in effect masking the true size of the annual deficit. But starting in 2018, payroll taxes are expected to fall short of what is needed to fully pay benefits, and the trust funds will need to be tapped. How are those IOU s going to be paid? By raising taxes, cutting spending, or borrowing more than $5 trillion (in today's dollars) in the coming decades. Without that infusion, payments will need to be cut to 73 percent of scheduled benefits in 2042, dropping to 68 percent by 2078.
advertisement
