Social Security in crisis? Hardly.
Despite doomsayers' predictions, the program is solvent, effective, and highly likely to continue that way.
Presidential candidate Barack Obama got himself into hot water with some in his own party when he recently said that Social Security faces a "crisis."
Senator Obama's problem is that the nation's most popular social safety net program is actually in pretty good shape.
"The whole problem is exaggerated," says Mark Weisbrot, codirector of the left-leaning Center for Economic and Policy Research (CEPR) in Washington. "Nobody needs to talk about it."
The Trustees of the Social Security system, in their report last spring, calculated that the system's income would be inadequate to pay the full benefits promised to seniors in 2042. By then, 35 years hence, many baby boomers will be gone. For those still living, the payroll revenues that provide the basic income for the system will be sufficient to pay 75 percent of promised benefits. The next generation of retirees will also get 75 percent – not zero, as so many of them believe because of the false talk about the system being "bankrupt." And unless the nation's productivity stalls for decades (Social Security benefits are linked to wage levels), that 75 percent will have a buying power perhaps 30 percent greater than the Social Security benefits received by seniors today.
An analysis of the Congressional Budget Office puts the shortfall – not bankruptcy – at 2046, a few years later, when the Social Security Trust Fund runs out of the Treasury bonds it has been stockpiling because current payroll revenues each year exceed benefits paid.
A professional actuary, David Langer in New York, sees a brighter picture. He figures Social Security's finances are actuarially sound and able to pay full benefits for the next 75 years.
Mr. Langer reaches his conclusion after examining a decade's worth of 75-year projections made by the trustees. He found that the most optimistic of the three annual projections has been most accurate. Those more cheerful predictions show Social Security completely sound, with even a small surplus at the end of 75 years. "There is no problem, actuarially," Langer says.
He blames conservatives and their think tanks – including the CATO Institute and Heritage Foundation – for a long "propaganda campaign" that has foisted on the public the idea that Social Security is in deep trouble. He also criticizes the media for accepting the gloomy view of these critics, many of whom advocate privatizing Social Security.
The Trustees' middle projection, which the Trustees see as most likely, indicates that Social Security's financial shortfall over 75 years amounts to $4.7 trillion. By comparison, the war in Iraq and Afghanistan is expected to cost at least $1 trillion and the Bush tax cuts another $1 trillion over time.
The shortfall in Medicare finances is far more serious: about $40 trillion.
One difficulty: Most long-term economic forecasts have proven decidedly inaccurate. Dean Baker, also a CEPR economist, points out that many aspects affecting Social Security costs in the future are unknown. For instance, will workers retire earlier or later?
There are other unknowns: fertility and mortality rates, immigration levels, real interest rates, the level of economic prosperity, and so on.
"There is uncertainty surrounding these," says Gary Engelhardt, a Syracuse (N.Y.) University economist. But he accepts the view that Social Security is in "crisis," regarding the Trustees' middle projections as "the best estimates, given what we know now."
From an economic standpoint, fixing Social Security is "really very doable," he says. It is another matter from a political standpoint.
Democrats tend to talk about eliminating any financial gap by raising taxes on the well-to-do. Sen. John Edwards, for instance, suggests making those earning more than $200,000 a year pay Social Security taxes on the amount over $200,000. Next year, earnings up to $102,000 are subject to the payroll tax.
Sen. Hillary Clinton has refused to say what she would do about Social Security, except appoint another commission. "That's realistic," holds Mr. Baker.
Republicans Rudolph Giuliani and Fred Thompson rule out Social Security tax increases. But Mr. Thompson does have a plan to cut benefits over time by indexing benefits to inflation, not the level of wages.
Research by Professor Engelhardt and Jonathan Gruber of the Massachusetts Institute of Technology affirm the basic merits of the Social Security system. They find that Social Security pensions reduced the poverty level among elders from 30 percent in the late 1960s to less than 10 percent in 2004. After inflation, Social Security benefits have doubled in generosity in that same time span.
That's one reason that Social Security remains the "third rail" of politics, as President Bush found out when his partial privatization proposal failed.
And that generosity is why, in the future, politicians will find Social Security benefits cuts hard to sell to the public.