Social Security's One Real Problem
Life + Money

Social Security's One Real Problem

The remaining major Republican presidential contenders managed to escape their debate prior to Tuesday's Florida primary without being asked to answer a single question about Social Security. That's remarkable, considering the state's aging population and the outlandish statements the candidates have made about the program. But they aren't the only ones getting a pass on the subject. President Obama mentioned Social Security briefly during his State of the Union address last week, but his comments raised more questions than they answered.

"This nation is great because we get each other's backs," the President said, invoking populist themes of fairness, an even playing field and an activist role for government in restoring economic security. No government program helps us get each other's backs more than Social Security. The program embodies the idea of inter-generational compact - the payroll tax contributions we make fund an insurance backstop for one another against the loss of income due to old age, disability or death of a wage-earning family member.

The President said last week that he wants to "strengthen Social Security, so long as those programs remain a guarantee of security for seniors." But in the same breath, he signaled that he's prepared to make benefit cuts in exchange for tax reforms that reduce the deficit. This despite the fact that Social Security has no direct impact on the deficit. By law, Social Security can't borrow a dime; in fact, it currently is a huge lender to the federal government as its surplus is invested in Treasury notes.

The President should stop tying Social Security to the deficit, and instead start explaining that Social Security is an affordable, essential program. Current outlays were equal to 4.7 percent of GDP last year, a figure that will slowly rise to 5.3 percent by 2021, according to the Congressional Budget Office.

Likewise, the argument that Social Security is in dire straits because it's gone cash-flow negative don't hold up. While the program has been paying out more than its receipts from FICA taxes, it's still comfortable cash positive when you include bond redemptions and interest, and income taxes paid by some beneficiaries.

"If you look at just the next 25 years, you have 100 percent cash flow adequacy," says Ken Buffin, president of Buffin Partners, Inc., an actuarial and economic research firm, speaking at last week's annual conference of the National Academy of Social Insurance. "If you look out farther over 50 years, it has 90 percent adequacy, a deficit that is not difficult to manage."

Buffin was alluding to Social Security's only real problem: it's on track to exhaust its surplus around 2036, at which point it will have enough incoming revenue to pay only 77 percent of promised benefits. But that problem can be solved without cutting benefits; for example, removing the cap on income subject to FICA tax would close most of the projected gap. Obama should be embracing that change and rallying young Americans around the idea that Social Security can meet its promises to them when their time to retire rolls around.

Beyond playing good defense, Obama should mount an offensive strategy by calling for an expansion of Social Security - and describing how he'd pay for it. And while he's at it, Mitt Romney and Newt Gingrich should be asked how they justify their claims that Social Security's finances are a fraud, considering that the program is sitting on a $2.6 trillion surplus and is projected to be 100 percent solvent for the next 25 years. Ron Paul should be asked to explain his comment that Social Security isn't Constitutional, considering that the Supreme Court settled that question back in 1937.

The financial crisis has wrecked the retirement security of many Americans, and Social Security is the most important source of income for most seniors. Yet current benefits are modest - the average is $1,177 per month. That could be boosted across-the-board by 20 percent over time. Or, more targeted increases could be implemented - higher benefits for the oldest old and widows; benefit credits for childcare; or by putting a floor underneath benefits for low-income workers.

Off-setting revenue could come from a tax on financial transactions, or by allowing the Social Security trustees to invest a portion of the trust fund in equities to earn better return. Or the FICA tax rate could be increased incrementally over time.

Numbers aside, Americans need to hear more during this campaign year about the moral aspect of Social Security - the idea that this is the mother of all programs when it comes to getting each other's backs. Here's what one Democratic senator said about Social Security in 2005, during the battle over President George W. Bush's plan to privatize the program: ". . . Families face more risk and greater insecurity than we have known since FDR's time, even as those families have fewer resources available to help pull themselves through the tough spots. Whereas people were once able to count on their employer to provide health care, pensions, and a job that would last a lifetime, today's worker wonders if suffering a heart attack will cause his employer to drop his coverage, worries about how much he can contribute to his own pension fund, and fears the possibility that he might walk into work tomorrow and find his job outsourced.

"Yet, just as the naysayers in Roosevelt's day told us that there was nothing we could do to help people help themselves, the people in power today are telling us that instead of sharing the risks of the new economy, we should shoulder them on our own. In the end, this is what the debate over the future of Social Security is truly about." That senator, by the way, was Barack Obama of Illinois.