Social Security

The crisis of weapons of mass destruction surprised all Americans when it turned out to be a crisis of bad intelligence. So it begs pause today, as the impending challenge in paying Social Security benefits is labeled an immediate crisis.

In fact, before considering changes to America’s oldest social safety net, we should consider the words of another George. In 1905 philosopher George Santayana wrote, “Those who cannot remember the past are doomed to repeat it”.

As the rhetoric about Social Security’s solvency gets kicked up a notch, Congress should remember the past and avoid making decisions based on bad intelligence.

When President Franklin Roosevelt established Social Security seventy years ago, the program was designed to provide pensions for the elderly and disabled. Poverty has basically been eliminated amongst our most vulnerable citizens by the program, which is funded through payroll taxes.

Today, Social Security benefits represent half the income for two thirds of the 36 million beneficiaries. For twenty percent of them, it represents their entire income.

According to the Social Security Administration, roughly 61,000 Alaskans claim monthly benefits. In addition, 11,000 low income, blind or disabled Alaskans received Supplemental Security Income. With the baby boomer population poised for retirement, recipients will increase.

However, there is a challenge that looms on the horizon.

When Social Security was started, the first recipients began receiving benefits without paying in. That made the program a pay as you go system. With changing demographics, the status quo will be impossible to maintain.

With a shrinking workforce and a growing number of retirees, obligations will begin to exceed revenues in 2018. But that’s still over ten years away, which means it’s not an immediate crisis and our congressional delegation has time to craft sensible solutions.

There are no silver bullets to fix Social Security. The balanced solution will require a mixture of actions. Some are politically difficult like raising payroll taxes or reducing future benefits  

Some ideas include changing how benefits are calculated. Currently benefits are based on the average increase in wages during a retirees working life. This proposal suggests changing those increases to price inflation. But since wages have historically grown faster than CPI, future recipients could find themselves getting less while the government gets more.

The most controversial idea is to allow workers to divert up to 4% of their payroll taxes in private investment accounts. However, all sides agree; private accounts will not solve Social Security’s financial woes.

And while younger workers should be free to control their retirement fund destiny, the risks and cost must be addressed. With only 50% of Americans currently owning stock, guidelines must be crafted to protect young investors and their payroll tax dollars from risky ventures and financial management fees.

But most importantly the cost of transitioning to private accounts -projected at $2 trillion dollars- must be accounted for honestly.

Government borrowing would add $160 billion a year to a federal budget that is already awash in red ink. Increasing the current account deficit by 40% risks raising interests rates and scaring global investors. The argument that the debt would be offset by a commensurate reduction in future liabilities ignores the reality of future program mandates.

And if that’s not enough, Social Security isn’t even the real crisis. The real crisis is Medicare/Medicaid.

After accounting for the new prescription drug benefit, the government health care program now is growing a deficit twice as large as Social Security. In 2030 when Social Security is projected to consume 6.3% of gross domestic product, Medicare will consume 8.3%.

And while trustees project Social Security will be insolvent by 2049, Medicare is projected to reach that point by 2019. Nowhere is the crisis more evident than Alaska, where Medicare/Medicaid represent the fastest growing cost center in the state’s budget.

The hyperbole about a Social Security crisis is designed to create fear among the public and manipulate Congress to act. The economic reality is both entitlements need fundamental changes to protect future generations.

For the public’s sake, those changes should be debated with facts instead of scare tactics.