Social Insecurity

If it ain't broke, don't fix it.

Who said it's broke?

It ain't broke yet, but it will be in 20 years.

OK, let's fix it now.

   There's been a big hue and cry about Social Security going broke. It is true that currently, payouts exceed income, and in 20 years -- if nothing changes -- the agency's trust fund, or money it has collected over the years, will be exhausted.
   In the current fiscal year, the agency paid out benefits totaling $808 billion, on revenues of $745 billion, according to a report by the Congressional Budget Office. So to meet its obligations to retirees and others, the Social Security Administration had to tap into its backup trust funds to make up the difference. So as the Baby Boomers retire and pension benefit payouts increase -- even as revenues remain the same -- in 20 years there will be a problem. Again, on the assumption that the SSA revenue stream is unchanged.
   Clearly, one answer is to increase the revenue stream. An alternate is to reduce the number of retiree and disability beneficiaries. Or cancel the program entirely. Ain't gonna happen.

   The SSA has two main sources of revenue, payroll taxes and income taxes on benefits received. "Roughly 96 percent of those revenues derive from a payroll tax -- generally 12.4 percent of earnings -- that is split evenly between workers and their employers," the CBO said. The remaining 4 percent comes from income taxes that high-income beneficiaries pay on their benefits, the CBO reported.
   Therefore, to close the gap between income and expenses, the Social Security Administration has the same options that any other family or firm has -- increase revenue or reduce expenses, or both.
   Cutting pension benefits for those who rely on them for survival is politically disastrous. Eliminating the program is impossible. That leaves the option of increasing revenue.
   
   Employees now contribute 6.2 percent of their taxable earnings to the fund, with the company paying in an equal amount. (Emphasis on taxable earnings, not on gross.) Another way is to boost the income tax rate on benefits. This would not affect those who have only Social Security pensions as income.
   Yet another method would be to increase either the payroll tax rate of 12.4 percent, or to raise the earnings maximum. That ceiling is now $113,700, which means that only those earning more than that would see an increase in their contribution to the pension fund.
   It's been three years since the gap appeared. In calendar year 2010, the CBO said, annual outlays for the program exceeded revenues for the first time. In 2012, the gap was 7 percent, and the CBO estimates that this shortfall will average about 12 percent of revenues over the next decade. Agency revenue estimates, by the way, did not include interest income, but only contributions.
   If things don't change, the CBO said, the trust fund balance could fall to zero in 20 years, and revenues would not be enough to meet obligations.

   So Congress has 20 years to fix something that isn't yet a problem, but even if the reserve trust funds are exhausted, the worst that could happen is that "the Social Security Administration would no longer have the legal authority to pay full benefits when they were due," the CBO report said.
   Will Congress do something to help the pension and disability agency keep its books balanced, or will it do nothing, and let the millions of retirees and the disabled do without?
    They've got 20 years to resolve the issue and prevent a real problem. Will they? Stay tuned.