Editors’ Note: The post below is an expanded version of Tanner’s initial post at this URL.
The Social Security system’s trustees have released their annual report on the system’s finances and announced that – surprise – the program’s looming financial crisis hasn’t gone away.
Social Security will begin running a deficit by 2016, meaning that just seven years from now the program will begin spending more money on benefits than it takes in through taxes. That’s a year sooner than last year’s report.
Of course, in theory, the Social Security Trust Fund will pay benefits until 2037. But even that figure is misleading, because the Trust Fund contains no actual assets. Instead, it contains government bonds that are simply IOUs, a measure of how much money the government owes the system.
Even if Congress can find a way to redeem the bonds, the Trust Fund surplus will be completely exhausted by 2037. At that point, Social Security will have to rely solely on revenue from the payroll tax – and that revenue will not be sufficient to pay all promised benefits. Overall, the system’s unfunded liabilities – the amount it has promised beyond what it can actually pay – now total $17.5 trillion. Yes, that’s trillion with a ‘T.’ That’s $1.7 trillion worse than last year.
Critics of personal accounts for Social Security have pointed to the decline in the stock market over the last few years as an argument against allowing younger workers to privately invest a portion of their Social Security taxes. Yet studies [more here and here] have shown that long-term investment remains remarkably safe. If workers retiring today had been allowed to start privately investing their taxes 40 years ago, they would obviously have less money than those who retired a couple of years ago.But they would still have more than Social Security promises. And, as the Trustee’s Report shows, a poor economy hurts Social Security’s ability to pay benefits just as it hurts the stock market.
In the end, there are only three possible solutions to Social Security’s problems: raise taxes (and the Social Security payroll tax would have to be nearly doubled to keep the program afloat), cut benefits, or allow younger workers to invest privately.
We can have an honest debate about which of those options is the best choice. But, as the Trustee’s Report makes clear, Congress and the Obama administration cannot continue to duck the issue.