SOCIAL SECURITY REFORM

Social Security: Will it Survive?

Social Security Reform

Abstract

Could it be time to put Social Security reform back on the table? That would seem to be a bizarre question, given the spectacular failure of President George W. Bush's attempt to reform the troubled retirement program. Yet, none of Social Security's problems have gotten better during the intervening years. 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 the average American family pays. Indeed, nearly 80 percent of Americans pay more in Social Security taxes than they do in federal income tax. And, millions of seniors depend on Social Security for their retirement income.

Thesis Statement

As Social Security's problems become more apparent, there is growing support for the concept of reforming social security. As the debate grows it becomes more important to move beyond generalizations and provide detailed proposals for how such reforms can be accomplished.

Introduction

The program is unsustainable. It cannot pay future benefits without drowning our children and grandchildren in debt and taxes. Social Security will begin running a deficit by 2016, just six years from now. In theory, the Social Security trust fund will pay benefits until 2037, which should serve as cold comfort to today's 31-year-olds. But 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 exhausted by 2037. Overall, the amount the system has promised beyond what it can actually pay now totals $17.5 trillion. Yes, that's trillion with a T. Equally important, workers still have no ownership of their benefits. This means that workers are left totally dependent on the goodwill of 535 politicians to determine what they will receive in retirement. Low- and middle-income workers are still unable to accumulate a nest egg of real, inheritable wealth. And younger workers still receive a dismal rate of return on their money. (Fried, 2008)

If Social Security's problems haven't changed since the Bush years, neither have the possible ways to fix those problems: Raise taxes (the Social Security payroll tax would have to be nearly doubled to keep the program afloat), cut benefits by as much as 25 percent or allow younger workers to invest privately. (Fried, 2008)

We could always raise taxes or cut benefits enough to bring the system into balance. Some have suggested removing the cap on income subject to the payroll tax. But while that would be the largest tax increase in U.S. history, at least $1.3 trillion over the first 10 years, it would increase Social Security's cash-flow solvency by just seven years. Raising taxes or cutting benefits will make an already bad deal worse for younger workers, many of ...