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The actuaries and trustees at the Social Security Administration have long understood the challenges facing our Social Security program. With the impending retirement of the large baby boom generation starting around 2012, there will be a shift in the proportion of workers paying into Social Security to the retirees drawing benefits. As a result, there won’t be enough money as benefits going out will exceed taxes coming in by 2015. I met with White House staff and Political Director Karl Rove to encourage presidential leadership to deal with the coming crisis. There is an even greater need to face up to the Social Security problem now with the probability of more money needed a very expensive prescription drug benefit added to Medicare.
The population age 65 or older will increase from 37 million today to 75 million in 2035 and to 95 million in 2075. This population will grow much faster than workers due to increased life expectancies for seniors and lower birth rates. Because Social Security is a pay-as-you-go system, with workers’ payroll taxes going immediately to pay benefits to seniors, these demographic changes will lead to the program’s insolvency in a little over ten years unless something is done.
The options for Social Security are straightforward. We can increase payroll taxes (which are already higher than income taxes for 75% of American workers), cut benefits, or instead of using the extra money for other government spending, get a real rate of return on the payroll taxes we already collect. It should be obvious that the last option is best. But it cannot work unless we give money time to grow with interest. If we wait another decade to act, there will be no choice but to raise taxes and cut benefits.
I have introduced my own reform proposal in each of my terms in Congress. They have been based on slowing down the increase in benefits for high-income retirees and worker-owned retirement accounts to have a real rate of return. I am working on the final aspects of this year’s bill, which I will introduce late in July, as I finalize provisions to make the system more fair for women. One thing I’ve learned over the last decade is that time is running out for a reasonable solution. Each new bill has to be little more drastic than the one before in order to reach solvency for Social Security. This is what gives me such a sense of urgency to act so we can avoid burdening our children and grandchildren with more debt, more taxes and a failing Social Security system.
Many people are concerned that a Social Security system with worker-owned accounts is unsafe because people might invest poorly and lose their savings. I’ve studied the problem as Chairman of the Bipartisan Social Security Task Force, and think that investments can be limited and protected, as they have been in other countries such as Britain, Australia, New Zealand, and Chile. My bill requires the government to start paying back what has been borrowed from the Trust Fund and that current payroll taxes go someplace safe, earn interest, and end up keeping Social Security solvent.
Politicians here in Washington need to act on Social Security, but they are too often focused on the next election to deal with problems that are still a decade away. The truth is that Social Security is headed for a cliff. If we begin to turn and slow down now, we can avoid it smoothly. If not, a panicky swerve and screeching of brakes is coming. Let’s avoid that.
Congressman Nick Smith represents Michigan's 7th District. For more information, please visit his website at http://www.house.gov/nicksmith/.