Post Scripts: Some musings on Social Security

Federal Reserve Chairman Alan Greenspan is not a typical politician. If he were we would not have seen him speaking the unspeakable truth before Congress concerning the future of Social Security. He told lawmakers that future costs of Social Security (as we know it) are unsustainable and cuts will be needed. This was news his wife, Andrea Mitchell, a network newscaster, most likely could have used as a lead story.

His testimony was filled with truths about the undeniable need for Social Security reform. The fiscal needs are scary and have been confirmed by respected, nonpartisan agencies such as the General Accounting Office and the Congressional Budget Office. What’s happening is, the crisis building up, is driven by the impending retirement of the baby-boomer generation.

Eligible for retirement beginning in 2008, 78 million Americans will quickly overwhelm the ability of the system to pay up. For about 70 years the "pay as you go" policy of the SS system has worked quite well. True, now and then the payroll tax has been raised to provide promised increases. In its beginning the SS payroll tax was just 2 percent applied to the first $3,000 of a person’s income. Today, I believe, the tax is 12.4 percent on the first $87,900 of income. Most of us have never had to worry about that bracket.

However, along comes this generation which has produced twice as many retirees and by 2018 there will not be enough paying workers to finance the program. I won’t be on the SS rolls anymore – hopefully I and others my age will be pushin’ up daisies.

Right now there are 3 ½ workers for every retiree, but by 2030 , when the baby boomers have retired, there will be only two workers per retiree. That’s a looming major crisis Greenspan is alerting the nation about. Some politicians insist we still have plenty of time to "fix it." Trouble is, the trust fund is not a government asset, it’s a liability because the SS surplus has been used routinely to hide the overspending in the federal budget. Treasury bills have been issued to the trust fund but they are no more than IOU’s. The only way to honor these trust-fund obligations is to raise taxes, cut government programs, or to borrow money.

When it comes to Social Security, there is no free lunch. Tomorrow’s retirees are being promised SS benefits much higher than those receiving benefits today simply because the planners know it will take more to live – or exist in the future. Several members of Congress have submitted reform plans and interest in the system is growing, but beware of the temptation to play politics with this issue. Experts warn that meeting SS’s future costs would requite raising payroll taxes by as much as 50% — or reducing benefits by as much as 30 percent.

Doing that would mean younger workers would have to pay more while getting less. This is a problem that won’t go away. There are days now when I’m not sorry I’m getting old but a way must be found to assist the baby boomer generation without seriously harming their children and grandchildren.