Social Security Funding is Easily Fixable
The outrage over Social Security benefits viability is warranted. It is clear the program faces long-run financing issues since 1983 and it was well understood by Congress that the shortfall was not going be corrected since early in 1993. ”The Figure shows that the deficit has hovered around 2 percent of taxable payrolls for almost 20 years.” Since nothing has been done the financial hole is getting larger and payroll taxes will have to be increased at a higher rate than if Congress had simply made proper planning 20 years ago.
- Source: 2012
Social Security Trustees Report, Table VI.B1.
- SOCIAL SECURITY’S 75-YEAR
DEFICIT AS A PERCENTAGE OF TAXABLE PAYROLL, 1983-2012
A current Social Security Trustees Report found that in order to responsibly fund Social Security the payroll tax rate for employee and employer
would need to rise by 1.3 percentage points each. The increase would enable the system’s viability through 2086. The long term fix, beyond 75 years, could be a multitude of devices, but attempting privatization is a “red herring” where the private sector, i.e., the financial sector has shown great vulnerability to mismanagement, and catastrophic failure, think TARP bailout.
The lack of Congressional action is extremely frustrating since the options for fixing the problem have been known for decades. “Social Security is a simple system. It takes in money and pays out benefits. If projected benefits exceed projected revenues plus the assets in the trust fund, either the outflow of benefits must be cut and/or the inflow of revenues must increase. Numerous commissions have contributed to a laundry list of ways to cut benefits or raise taxes. So the problem is not like health care, where the answers for controlling costs are elusive; in the case of Social Security, we know exactly what to do. Reasonable people – Republican or Democrat – could sit down for an hour and come up with a compromise plan….Describing the magnitude of the problem in terms of a tax fix is designed simply to show that the challenge is manageable. Increasing the age of eligibility for full benefits slowly and changing the indexing would reduce the required tax increase.” www.smartmoney.com, Anger Over Social Security Financial Woes, Alicia Munnell, June 15, 2012.
Since 1993 Congress has known what the fix is for Social Security, but nothing has been done. Political polarization and pie in the sky privatization rhetoric has stalled, delayed, and may soon create needless funding shortfalls where Social Security is at best, only viable until 2044. Kicking the can down the road is going to be crushed by Social Security funding realities which appear to be a simple fix now, not later.
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Posted on Monday, June 18th, 2012 at 9:03 pm and filed under Social Security Law.