With the fighting in Iraq winding down, President Bush and Congress are returning to domestic concerns. They would be well advised to put Social Security reform at the top of their agenda.
Last month, Social Security's trustees released their annual report on the system's finances. Since it fell in the middle of the Iraq war, it was overlooked by most of the media and public. But it confirmed that the national retirement program is facing a financial crisis that demands immediate attention.
According to the trustees, Social Security will start to run a deficit -- spending more money on benefits than it takes in through taxes -- in just 15 years, by 2018. The so-called Social Security trust fund, which is supposed to help pay benefits until 2042, in reality contains only government bonds, essentially an IOU. While few observers doubt that those benefits will be paid, the federal government will still have to find the money to pay them.
And a lot of money it is. In 2018, the first year that Social Security faces a shortfall, the cash deficit will exceed $17 billion. That's as large as the budgets for Head Start and the WIC nutrition programs combined. By 2022, the annual Social Security deficit will have grown to roughly $100 billion, as large as the combined budgets for the Departments of Education, Interior, Commerce, and the Environmental Protection Agency. By 2027, with the annual deficit approaching $200 billion, you can add in the NASA and the Department of Veterans Affairs. And so it goes. Overall, Social Security now faces unfunded liabilities in excess of $6.4 trillion, that's an increase of more than $1.37 trillion since last year.
Not that this is the only problem with Social Security. The program already provides today's workers with a low, below-market return on the taxes that pay for Social Security. The program unfairly penalizes African-Americans, working women and others. Workers don't own their money or have any guaranteed right to their benefits. In short, it is a program crying out for reform.
The president and at least some in Congress understand this, and they understand the limited options for reform available. It was former president Bill Clinton who laid out the possibilities: raise taxes, cut benefits, or try to earn a higher rate of return through private investment. The tax increases would be huge, a 50 percent increase in the payroll tax or the equivalent. The second alternative, a 25 percent or more cut in benefits, would fall hardest on the elderly and those in need.
Fortunately, President Bush is committed to the third alternative. He would allow younger workers to privately invest a portion of their Social Security taxes through individual accounts.
We have just come out of a war, and there are many issues fighting for congressional attention. The war's aftermath and the fight against terrorism will remain our top priorities. The sputtering economy needs a boost, and the president will continue to push for tax cuts. Congress is trying to find a way to add prescription drugs to a Medicare program that is already hemorrhaging money. That's a full plate for anyone.
But Social Security reform cannot be allowed to languish. Every two-year election cycle that we delay adds an additional $320 billion to the cost of reform. No one pretends it will be easy, but we have seen that President Bush is not easily deterred. If he is prepared to bring his resolution and determination to Social Security reform, he will, once more, be able to drag along a reluctant Congress. That will be another victory for the American people. In the long run, maybe even a bigger victory than the one in Iraq.