Aug 18, 2010

Time for change in the Social Security model

If a corporate executive reported to shareholders that the firm intentionally planned to operate with a negative cash flow for a period of 20 years or more, we could comment with some certainty that the shareholders would find this unacceptable.

Yet, that is what the federal government has announced it plans to do with one of its largest budget programs — Social Security.

In its annual assessment of the Social Security program, its trustees confirmed the projected insolvency date remained unchanged from last year’s prediction of 2037. But the report also offered details about the program’s operating budget. For the first time in its history, Social Security will distribute more money than it takes in this year, and that will continue well into 2011.

Even after a brief period where Social Security is expected to operate in the black — from 2012 to 2014 — it is anticipated that the program will resume spending more than it receives in 2015 and continue to do so throughout the long-range period.

While the projection for Social Security’s insolvency did not change from last year, the outlook for expending more in benefits with less funding coming in is not a sustainable business model over the long term.

The time to devise a fix for Social Security is now.

Making Social Security solvent would not solve all of America’s debt problems, but it would be a major step forward. And to step away from a fiscal abyss and avoid falling into a debt-deflation spiral, you have to start somewhere — and the sooner, the better.

There are many ideas being floated in the press and in the public for fixing Social Security and solving the nation’s growing debt problems. But the reality is that the leadership on Capitol Hill needs to make this a serious debate.

With the current weak economic recovery, there are some ground rules that they should begin with. For example, the plan should not include any increases in payroll taxes, and it must ensure that retirement benefits be maintained for lower-income Americans and for those who are within 10 years of retirement. A recession is not the time to raise taxes, and we need to find ways to protect the savings and future of our most vulnerable neighbors.

All other steps to enhance solvency — including extending retirement age or limiting benefits — should be open for compromise.

Unless we understand and craft solutions to deal with our deficit, we cannot fulfill the promise of Social Security. With so many people relying on Social Security for all or part of their retirement savings, we cannot afford to fail in finding the solution.

2 Responses to Time for change in the Social Security model

  1. Ann Dalkey says:

    I disagree with your advice to extend retirement age and limiting benefits as a fix for Social Security. Instead, we should follow the suggestions of Senator Bernie Sanders, by making all income subject to Social Security taxes. It will not harm those of us making more than $106,000 and will significantly help Social Security. It is in society’s interests for all people to have a dignified retirement.

  2. Adam Langton says:

    This article seems to equate the current net Social Security outlays with bad management or government largesse. In truth, the current negative outlays are the result of prudent planning and saving, the same characteristics this organization recognizes as virtues when practiced by its clients.

    When the Social Security program was modified in the 1980s, it was understood that the program would be running a deficit during the the first half of the 21st century. The program deliberately ran up a surplus during the 1990s so that it could support future outlays associated with the baby boomer retirement. Changes to the retirement age and other program rules helped ensure that the program would be solvent for an additional 50 years.

    It is probably necessary to consider minor rule changes (changes to the minimum retirement age, for example) to reflect workplace realities, similar in scope to what was done in the 1980s. Comparing Social Security to a business isn’t helpful. The program simply redistributes income across generations, and should not generate any net financial profits. All the benefits from the program can be measured in the improvements in the lives of the elderly in our country. For hundreds of years, the elderly experienced the highest poverty rates of any age group in any community or country. After Social Security was introduced, the elder poverty rates dropped to lowest of any age group in the US. Any business that could claim this kind of success would be reluctant to push for sweeping, dramatic changes simply to make its short-term financial perspective a little rosier.