Social Security's boosted staying power
Relax baby boomers. Cool it presidential candidates.
Social Security is sound and safe for about 45 years. Even Medicare should run into no financial problems until maybe 2020.
At least that is what the latest projections of the Congressional Budget Office imply. They show an even bigger federal budget surplus feeding more money into the Social Security Trust Fund plus continued healthy economic growth.
That view is much brighter than last year's Social Security trustees' report. The trustees assumed the trust fund would run out of money in 2034 and that payroll taxes would then cover only about 75 percent of benefits due pensioners and the disabled.
The CBO numbers, economist Dean Baker notes, indicate the trust fund will grow in the next 10 years an extra $500 billion above what the trustees assumed.
That means "saving" Social Security isn't at all urgent. It is already saved for a long time. Both Democrats and Republicans have pledged not to touch revenues flowing into the trust fund.
The trustees in their 1999 report projected the fund growing by $1.846 trillion by the end of 2010. The CBO now says it will expand by $2.471 trillion.
So the money in the trust fund will last until about 2045, says Mr. Baker of the Center for Economic and Policy Research, a Washington think tank.
The counterpart fund for Medicare will last until 2020 instead of the 2015 projected by its trustees.
This cheerier view arises from higher estimates by the CBO of growth in national output and productivity than those made by the Social Security trustees. Gross domestic product will be up 2.8 percent a year in this decade, not a mere 2 percent. Productivity will rise 1.9 percent a year, not just 1.35 percent.
Both CBO estimates are well below recent experience in the economy.
The Clinton Administration will present its budget today. It is unlikely to have economic or deficit projections sharply different from the CBO.
So far this year, the budget surplus continues to grow like kudzu. In the fiscal year ended Sept. 30, 1999, the government posted an overall record $124 billion surplus. This fiscal year, the CBO says, it will reach $176 billion.
Projecting surpluses well into the future, Mr. Clinton will propose today that the entire $3.6 trillion of national debt held by the public be paid off by 2013. House GOP leaders are talking of doing it by 2015.
Debt repayment is already happening. Last week, the Treasury announced its plans to repay $17 billion in public debt this quarter, and an additional $152 billion in the quarter ending June 31.
If all debt held by the public disappears as planned - and it is a big "if" considering the vagaries of the economy, Washington will be relieved of the burden of paying any interest on that debt after 2013. This year, interest payments will amount to about $200 billion.
Defense costs about $270 billion.
After 2013, the Treasury still will be paying interest on its bonds held by the Social Security Trust Fund. That interest helps pay pensions.
So far, Social Security has been background noise in the run for presidential nominations. Baker suspects it will become a noisy issue once the two parties have settled on candidates. That's because both of the leading Republican candidates, George W. Bush and John McCain propose some degree of privatization of Social Security. Democrats disapprove of privatization.
Senator McCain proposes using 62 percent of the surplus that isn't going into the Social Security Trust Fund to help finance a new system of private accounts. Workers could invest part of their payroll taxes in stocks and bonds. Mr. Bush also talks of private accounts within the Social Security system.
Baker offers a cautionary note. The CBO now forecasts that after-tax corporate profits, taking account of inflation, will shrink 4.8 percent by 2010. Profits as a percentage of the nation's gross domestic product are at a record-high level. The CBO expects that level to fall.
In any case, shrinking profits are not a good omen for stock prices.
Baker suspects the happy hopes of those keen on privatization for stock prices will be disappointed.
Two more points:
First, abolition of federal debt should end talk of this generation burdening the next generation.
Second, the children of today should decide a few decades hence how they want Social Security altered - later retirement or whatever - if a financial gap makes that necessary. It's not their grandparents' choice, argues Baker.
(c) Copyright 2000. The Christian Science Publishing Society