While the presidential candidates have found time to debate Mitt Romney's lawn care service, Hillary Clinton's tears, and who should get credit for the 1964 Civil Rights Act, Social Security has, by and large, gone curiously un-discussed. One might think the financial crisis facing the national retirement program has miraculously solved itself.
But Social Security will begin running a deficit in less than 10 years. Of course, in theory, the Social Security Trust Fund will pay benefits until 2040. That's not much comfort to today's 32-year olds, who will face an automatic 26 percent cut in benefits unless the program is reformed before they retire. But even that figure is misleading, because the Trust Fund contains no actual assets. The government bonds it holds are simply a form of IOU, a measure of how much money the government owes the system. It says nothing about where the government will get the money to pay back those IOUs.
Even if Congress can find a way to redeem the bonds, the Trust Fund surplus will be completely exhausted by 2040. At that point, Social Security will have to rely solely on revenue from the payroll tax—and that won't be sufficient to pay all promised benefits. Overall, the amount the system has promised beyond what it can actually pay now totals $15.3 trillion. Yes, that's trillion with a 'T.' Setting aside some technical changes in how future obligations are calculated, that's $550 billion worse than last year. So by failing to act last year, Congress handed our children and grandchildren a bill for another half a trillion.
Moreover, Social Security taxes are already so high, relative to benefits, that Social Security has simply become a bad deal for younger workers, providing a low, below-market rate-of-return. In fact, many young workers will end up paying more in taxes than they receive in benefits. They will actually lose money under the program.
But the single most important problem with the current Social Security system is that workers have no ownership of their benefits. This means that they are left totally dependent on the good will of 535 politicians to determine what they'll receive in retirement. And those benefits are not inheritable.
One might think that would be at least as big an issue as, say, whether Barack Obama said something uncritical about Ronald Reagan. But Social Security's problems have generally been answered with silence. When candidates have been forced to address the issue, their answers have ranged from unsatisfying to incomprehensible.
Hillary Clinton has summoned the courage to call for ...(drumroll, please)...a bipartisan commission. Sometimes she goes further and demands...(another drumr"ll)... "fiscal respons"bility." Fiscal responsibility is a fine thing, and it would be wonderful to see some after eight years of the free-spending Bush administration. But given Mrs. Clinton's proposals of increased spending for everything from national health care to baby allowances, it's hard to imagine how much responsibility there will be. And fiscal responsibility will do almost nothing to fix Social Security. Indeed, during her husband's presumably more fiscally responsible time in office, Social Security's solvency actually deteriorated.
Barack Obama at least seems willing to admit that there's a problem. Unfortunately, his answer is depressingly conventional: Raise taxes. He wants to eliminate the cap on payroll taxes for Social Security. This would be the largest tax increase in U.S. history, more than $1.3 trillion in new taxes over the first 10 years alone. And it would do relatively little to fix Social Security, providing only eight additional years of cash-flow solvency. Rather than beginning to run a deficit in 2017, Social Security would continue to run a surplus until 2025. That's very little gain for so much pain.
As for the Republicans, they are largely missing in action. John McCain has supported comprehensive social Security reform in the past, including personal accounts and benefit cuts, but has not talked about it lately. Mike Huckabee has pronounced himself skeptical of benefit cuts, personal accounts, and tax hikes, effectively ruling out every possible solution. And Mitt Romney says "statesmen" from both political parties should sit down and "say honestly: 'What can we do?'" Now, there's one we hadn't thought of.
Social Security is the largest government program in the world, accounting for 23 percent of the federal budget. The Social Security tax is the largest tax that the average American family pays. Nearly 80 percent of Americans pay more in Social Security taxes than they do in federal income tax. Millions of seniors depend on Social Security for their retirement income, yet the program is unsustainable. It cannot pay future benefits without drowning our children and grandchildren in a sea of debt and taxes.
Perhaps the candidates could spare a few minutes to tell us what they would do about that.