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In 1934, President Franklin D. Roosevelt appointed a committee to study poverty among the elderly. In this Committee on Economic Security, our current Social Security system was born. Today, Social Security stands as one of the most popular – and expensive – government programs in American history.
Nearly 67 years after Roosevelt’s committee created Social Security, President George W. Bush formed a commission of experts to study and modernize the program. The 14-member Commission to Strengthen Social Security has been handed the daunting – yet essential – task of ensuring that millions of Americans will enjoy a secure and prosperous retirement. (Incidentally, those who claim President Bush "rigged" his commission with those who support his position should note that Roosevelt’s committee was comprised solely of his own cabinet members.)
The first significant act of Bush’s commission was the release of a report describing the crisis Social Security is facing. Their report largely echoes the findings the Social Security Advisory Board (SSAB), which was originally created by President Clinton, as well as the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (OASDI). In fact, most of the statistics cited in the commission’s report were taken directly from non-political, governmental sources, such as the OASDI report and the Social Security Office of the Actuary. The unifying thread among all of these reports is the assertion that Social Security must be modernized if it is to provide benefits to future retirees.
Central to the findings of the commission’s report is the shrinking worker-to-beneficiary ratio. Social Security is a "pay-as-you-go," or income transfer system, which means that contrary to popular perception, there is no real "trust fund" where Social Security tax dollars sit and await an individual’s retirement. Rather, the money put into the system by today’s workers is immediately sent to today’s retirees in the form of benefits. Retirees are therefore fully dependent on workers to earn and pay taxes if they are to receive their benefits. The worker-to-beneficiary ratio serves as an indicator of the ability of the workforce to pay the benefits of retirees. In 1960, there were more than five workers paying Social Security taxes to support a single retiree. However, this ratio is steadily declining and in less than 30 years, taxes from just two workers would have to completely support each retiree.1
The mass retirement of the "Baby Boomers" is largely to blame for this major demographic shift. As the Boomer generation begins to retire in 2008, record numbers of retirees will be dependent on Social Security benefits and the system will be forced to pay out more money than ever before. Even after most Baby Boomers have passed on, the worker-to-beneficiary ratio will continue to decline as a result of other demographic pressures.
Declining birth rates, for example, will further exacerbate the problem. The fertility rate has declined dramatically over the past several decades, shrinking from over 3 children per woman in 1964 to 2.07 today. Actuaries predict the rate will continue to lower slightly before leveling off at approximately 1.95.2 A lower birth rate means there will be fewer workers to support the increasing number of retirees.
Increased life expectancies will also contribute to additional strains on Social Security. Because of breakthroughs in medicine and science, people are living longer lives and collecting more Social Security benefit checks than ever before. The life expectancy for males has increased from 61.4 in 1940 to 73.7 in 1999. For females, life expectancy has increased from 65.7 to 79.5 over the same time period. By 2040 the average male will live to 78.3 and the average female to 82.7.3
Source: Social Security Advisory Board,
"Why Action Should be Taken Soon," July 2001
As a result of the declining worker-to-benefit ratio, Social Security will begin running a deficit in the year 2016 unless the government cuts benefits, raises taxes, or takes on trillions of dollars of debt. Though the system could technically pay full benefits until 2038, this would depend on a number of risky assumptions about debt repayment.
Since 1984, Social Security has run a surplus. According to law, surplus Social Security revenues are deposited into the general fund of the Treasury and special government bonds are issued to the Social Security Trust Fund. In 2016 the system will be forced to begin redeeming these government bonds in order to cover the shortfall. This means diverting money out of general revenues and into Social Security. If the government were unable to pay the bonds, which already exceed $1 trillion and will grow to over $3 trillion (adjusted for inflation), Congress would be forced to reduce benefits or raise taxes. In 2038, the bonds will be used up and Social Security will be unable to pay full benefits to seniors.4
Given the impending collapse of Social Security, the president and Congress have a moral obligation to modernize this popular program. President Bush has taken the first step by appointing his commission to study the program and recommend reform. Congress, too, must address this problem with bold leadership and political courage if Social Security is to provide for future generations of retirees.
1 President’s Commission to Strengthen Social Security, "Interim Report," August, 2001.
2 Social Security Advisory Board, “Social Security: Why Action Should Be Taken Soon,” July, 2001, available at http://www.ssab.gov/actionshouldbetaken.pdf.
3Social Security Administration, 2001 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, March 19, 2001, available at http://www.ssa.gov/OACT/TR/TR01/index.html.
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Citizens for a Sound Economy Foundation
Capitol Comment 299:
President’s Social Security Commission is Right on the Money: Social Security Will Soon Have None
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