Now that our politicians have finally reached a deal on health care, all attention has turned to a new question: â€œWhatâ€™s next?â€
While jobs, the environment and Donâ€™t Ask, Donâ€™t Tell are all being discussed, the most important issue is Social Security. As talk continues of trying to find ways to close the gaping hole in our nationâ€™s budget, itâ€™s becoming harder and harder to avert our eyes from the worsening fiscal situation that Social Security is in.
Social Security has been running a surplus for years, as the payroll taxes collected by working people more than paid all the expenses of the nationâ€™s retirees. This surplus of funds, moving into the Social Securityâ€™s so-call â€œtrust fund,â€ was supposed to continue though the end of this decade.
Instead, the New York Times alarmingly reported last week that because of the economy, the trust fund has this year gone into deficit, almost a full decade ahead of schedule.
This is a horrendous blow to our nationâ€™s already compromised finances. The Social Security trust fund is supposed to store up the surplus taxes, collected over the years, for when they are needed, as the Baby Boomers retire. But things have not worked out that way. The federal government has raided the cookie jar and â€œborrowedâ€ those surplus funds to fund the governmentâ€™s day-to-day bills.
Itâ€™s bad enough that the trust fund owns several trillion dollars in IOUs from the U.S. Treasury rather than hard cash or investments; a trust fund with no hard assets is a sorry sight.
But whatâ€™s worse is that now, with Social Security in deficit, with payouts to retirees greater than taxes collected from workers, the government has to reverse the flow of funding to Social Security. Instead of raiding the trust fund to pay normal bills, the government now has to spend its own funds to prop up Social Security.
For a government running a more-than-trillion-dollar-a-year deficit, the last thing we need is another costly budget expense, the treasury will have to pay tens of billions of dollars to ensure all our retirees get their Social Security checks on time this year.
As the demographic clock continues to tick, with the outsized Baby Boom generation retiring and the new, too-small, generation of workers taking their place, demands on Social Security will continue to rise while the taxes it takes in wonâ€™t increase quickly enough.
Concern is rising among many budget-watchers; while the trust fund is not projected to run out of funds until 2037, according to the Wall Street Journal, keep in mind the trust fundâ€™s â€œassetsâ€ are approximately $2.7 trillion in IOUs. To keep the system afloat through 2037, the federal government will have to spend $2.7 trillion in real dollars to make good on those IOUs it has given Social Securityâ€™s trust fund.
By comparison, weâ€™ve only managed to waste $900 billion on the Iraq War; the cost of keeping Social Security running over the next generation is equivalent to three Iraq Wars. And after 2037, the budget numbers get even more grim. Americans, bluntly, are living too long and not having enough babies for Social Security to survive in its present form.
There are three ways to shore up Social Security: You can cut benefits, raise the retirement age or raise the payroll tax rate.
Raising the payroll tax is a bad idea. We young people can only shoulder so many retirees on our backs. When the system was created, there were several dozen workers per retiree, now the ratio has fallen sharply. Itâ€™s unreasonable to expect us to raise a family and also pay all of a retireeâ€™s Social Security benefits.
The real answer is to increase the retirement age. When Social Security was created, it was old-age insurance. Note the word insurance â€“â€“ most people never collected as the average American died before they were eligible to collect benefits.
While weâ€™re already moving the retirement age from 65 to 67, it needs to go a lot higher as the average American now lives into their mid-70s.
Social Security was set up as insurance, not as a program so that people could choose to not save for retirement. Letâ€™s hope our politicians have the guts to make the tough decision and transform the current Social Security Ponzi scheme into a sustainable program that wonâ€™t sink our nations finances.
Editorials Editor Ian Bezek is a senior economics major. His column appears Mondays in the Collegian. Letters and feedback can be sent to firstname.lastname@example.org.