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Saturday, July 13, 2024

On second thought, Social Security might be in trouble

The political fight over Social Security took on added urgency Wednesday as the retirement system's trustees reported that it will turn into a money loser in 2017 - one year sooner than previously projected.

The political fight over Social Security took on added urgency Wednesday as the retirement system’s trustees reported that it will turn into a money loser in 2017 – one year sooner than previously projected.

More long range, Social Security will run out of cash reserves in its trust fund by 2041, again a year earlier than thought to be the case just a year ago, the trustees said in an annual report that added new material to the already raging debate.

By 2041, the trustees said, Social Security would be able to pay only 74 cents of every dollar of promised benefits – barring a White House-congressional deal that could entail some major changes in retirement plans.

Urging quick congressional approval of President Bush’s plan for partial privatization of Social Security, the White House seized the new report as evidence that lawmakers cannot delay painful steps to shore up the retirement system for the millions of baby boomers approaching their first claim on benefits.

But for the Democrats in Congress, the report proved their point that Social Security was not in any immediate danger.

“Today’s report confirms that the so-called Social Security crisis exists in only one place – the minds of Republicans,” said Senate Minority Leader Harry Reid, D-Nev. “In reality, the program is on solid ground for decades to come.”

The trustees, four of them Bush administration officials, said Social Security can be saved, but not as it now operates.

Offering more positive news, the trustees said that the giant Medicare health insurance program might have gotten a little bit healthier over the past year.

Medicare now looks to have enough money to keep paying hospital bills until 2020, as opposed to the 2019 insolvency date projected by the trustees a year ago.

But it was the downbeat report on Social Security, already the year’s hottest national political issue, that stirred up the debate.

Offering a politically impossible scenario, the trustees said that Social Security could be made solvent for the next 75 years if Social Security taxes were immediately raised by 15 percent or if benefits were cut by 13 percent.

The longer Social Security stays as it is, the more expensive will be the cost of making it solvent, the trustees said. They pointed out that Social Security is on a path to be $4 trillion short of the money it will need to pay full benefits over the next 75 years. Last year, the trustees estimated the 75-year shortfall at $3.7 trillion.

The White House said that the new report adds impetus to the president’s call for an overhaul of Society Security through the creation of voluntary private accounts for retirement with diverted Social Security taxes.

The report leaves “no question that Social Security reform is needed and is needed soon,” said Treasury Secretary John Snow, one of the six trustees for both programs.

“Reform of this system, for the sake of our children, grandchildren and the financial future of our country, is a very real and pressing matter,” Snow said.

Snow said that the president is proposing an overhaul of Society Security because the 70-year-old retirement system “cries out for answers.” Despite polls showing the public opposed to privatization, Snow said that Congress would deal with the president’s proposals before the end of this year.

“I agree with the trustees that action is needed sooner rather than later if we are to avert a crisis,” said Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee.

But Democrats in Congress who oppose Bush’s privatization plan welcomed the report as evidence that the country can make Social Security solvent without drastic overhaul that includes diversion of Social Security taxes to private accounts.

The report “reinforces one basic reality – in its current form, Social Security will be able to pay full benefits until 2041 and even after that will be able to pay 74 percent of benefits,” said House Minority Leader Nancy Pelosi, D-Calif.

“This finding flatly contradicts Republican efforts to manufacture a crisis in Social Security to justify a privatization plan that is unaffordable, unnecessary and unwise,” Pelosi said.

With Social Security facing “a shortfall more than 35 years in the future,” said Rep. Sander Levin, D-Mich., “this report offers us an opportunity to remove private accounts from the table, so we can come up with a thoughtful bipartisan solution that will protect Social Security for generations to come.”

The 2041 date for Social Security and the 2020 date for Medicare are the estimated times when the trust funds will have spent the money they have been accumulating in anticipation of 78 million baby boomers who will begin to claim benefits by the end of this decade.

The dates are the absolute deadline for the government to decide it if will keep the programs operating at their currently projected levels through a combination of benefit cuts, higher taxes, borrowing, or tapping other government programs.

“Though highly challenging, the financial difficulties facing Social Security and Medicare are not insurmountable,” the trustees said.

Four of the six trustees are administration officials. They are Snow, Labor Secretary Elaine Chao, Health and Human Services Secretary Michael Leavitt and Social Security Commissioner Anne Barnhart. The two private trustees are John L. Palmer, a retired dean at Syracuse University, and Thomas R. Saving, an economics professor at Texas A&M University.