SOCIAL SECURITY REFORM

This morning on WBZ we had a lively discussion about Social Security reform, following the President's State of the Union address. Every time I do a show on this issue, I find myself repeating certain facts that are still, apparently, not generally known.

1. The Social Security program is a pay-as-you-go system. The taxes from today's workers and employers (FICA) go to pay today's beneficiaries. It is not a trust fund in the traditional sense. While the SSA sends out personal details of your "account", you do not actually have any money in the legal sense of the word waiting for you when you retire, like you would in a private trust fund. Your account is a promise of benefits from the Federal Government that can be changed by Congress at their discretion.

2. The vast majority of beneficiaries are the elderly. Almost 40 million people are receiving Old Age and Survivors Insurance (OASI), while only about 7 million are getting Disability Insurance (DI). We cannot fix the system by simply dealing with those getting non-retirement benefits.

3. The Federal Government did not create this problem by "stealing" the Social Security surplus. Since the system is a pay-as-you-go program surplus money raised through FICA taxes are not accrued in the trust fund and invested like they would be in a private pension plan. Both Republicans and Democrats in Congress, for different reasons, have opposed investing Social Security Trust Fund money in stocks and bonds (Republicans quiver at the thought of government bureaucrats wielding enormous sums of money in private markets and Democrats shrink from the thought of those enormous sums being put at risk in those markets). Therefore, since you have to do something with the money, the surplus is converted into special government bonds, an accounting measure that allows the transfer of the money from the trust fund to the general fund, where it is spent on a variety of Federal programs.

4. When the program was created in 1935 there were approximately 16 workers for every retiree. Now there are about 2.5 workers per retiree. In 1935 most people did not live long past age 65. Now the fastest growing population of elderly folks are those over 80. The longer you live, the more benefits you collect. Most elderly people collect significantly more in benefits than they paid in FICA taxes (although this will change with generations about to retire, as they have spent most of their working lives paying significantly higher FICA taxes).

5. The Trustees of Social Security estimate that the program will begin paying out more in benefits than it collects in taxes in 2018, just thirteen years from now. At that time the Social Security Administration will have to turn in those government bonds in order to pay out 100% of promised benefits. That money will then be transferred from the general fund of the Federal government. This will require the President and Congress to either raise more revenue or cut other programs, unless the economy grows at such a rate that revenues increase of their own accord. The Trustees say that by 2042 the program will have liquidated all its government bonds and will, without action by Congress, be unable to pay 100% of promised benefits. They estimate the program will be able to pay only 73% of benefits at that time.

These are the facts as I understand them. The Trustees come up with their figures based on a complex projection formula. If certain factors are changed, then the deficit and insolvency dates will change. Lifespans could increase at a greater rate, resulting in more benefit payments and those dates would come sooner. The economy could grow at a higher rate and those dates would be pushed back. However one looks at it, the fact is that the program will have to be adjusted in order to be put on a sound financial footing. Our challenge as citizens is to educate ourselves about the problem in order to have an informed opinion about the possible solutions.