Social Security going broke

Social Security provides vital financial support for more than 54 million beneficiaries. Social Security also provides critical benefits to widows and those with disabilities. Unfortunately, Social Security faces a $8.6 trillion deficit over the next 75 years. With 10,000 “Baby Boomers” turning 65 every day, it is essential that we work to preserve the programs these seniors have come to count on. As Chairman House Budget Committee, one of my top priorities is to preserve the Social Security safety net and make sure the program remains solvent for future generations.

Social Security is Going Broke

Social Security is funded by the payroll taxes of current workers to pay the benefits of current retirees. Projected long run program costs are not sustainable under current program parameters. The Social Security Trustees project that the cash flow deficits that began in 2010 will continue permanently. That means that to pay full Social Security benefits, the government must cut spending, raise taxes, or borrow more money to finance pension payments.

A central factor in the looming financial crunch is the fact that our society is aging. The “Baby Boom” generation has already started to collect their Social Security retirement benefits. As a result, there are fewer workers to support each retiree than when Social Security was created. Increasing life expectancy and the approaching retirement of more Baby Boomers continues to put increasing pressure on Social Security each year. Over the next several years, the number of retirees is expected to grow more rapidly than the number of individuals whose taxes will pay for future benefits. Because of this, the number of workers supporting each Social Security recipient is projected to fall.

The Need for Reform

According to the 2012 Social Security Trustees Report, beneficiaries will face a painful 25 percent benefit cut in 2033 when the Trust Funds are exhausted – three years sooner than projected just last year. At that time, even those who are currently on Social Security – those now 62 and older – may experience indiscriminate cuts in benefits at a time when they are increasingly reliant on the program.

The Path to Prosperity

A common reaction to the question of what to do about the problem with Social Security has unfortunately been, “What problem?” These individuals often claim that the Social Security trust fund will remain solvent for another 21 years, at which point the government could theoretically cover the shortfall by raising taxes. Others downplay whether any changes to Social Security will be necessary – they claim that sustained economic growth could take care of the problem all by itself.

Neither is correct. First, any value in the balances in the Social Security trust fund is derived from dubious government accounting. The trust fund is not a real savings account. From 1984 to 2009, the trust fund collected more in Social Security taxes than it paid out in Social Security benefits. But the government borrowed all of these surpluses and spent them on other government programs unrelated to Social Security. The trust fund holds Treasury securities, but the ability to redeem these securities is completely dependent on the Treasury’s ability to raise money through taxes or borrowing.

Beginning in 2010, Social Security started paying out more in benefits than it collected in taxes – a trend that will skyrocket as the baby boomers continue to retire. In order to pay full benefits, the government must pay back the money it owes Social Security.

Those who wish to solve this problem by raising taxes are ignoring the profound economic damage that such a large tax increases would entail. Just lifting the cap on income subject to Social Security taxes, as some have proposed, would, when combined with the Obama administration’s other preferred tax policies, lift the top marginal tax rate to over 50 percent. In reality, lifting the cap on income subject to Social Security will hurt the self employed – like many of the farmers and small business men and women in the First District – hardest as these individuals pay both the employee and employer share of the Social Security tax and further hamper the economic growth these individuals can provide.

Most economists agree that raising marginal tax rates that high would create a significant drag on economic growth, job creation, productivity and wages. This nation cannot fix its retirement-security system by leaving young families with nothing to save.

I believe there is a bipartisan path forward on Social Security – one that requires all parties first to acknowledge the fiscal realities of this critical program. The President’s Fiscal Commission made a positive first step by advancing solutions to ensure the solvency of Social Security.

The Commission suggested a more progressive benefit structure, with benefits for higher income workers growing more slowly than those of workers with lower incomes who are more vulnerable to economic shocks in retirement. It also recommended reforms that take accounts of increases in longevity, to arrest the demographic problems that are undermining Social Security’s finances.

In addition, there is bipartisan consensus that Social Security reform should provide more help to those who fall below the poverty line after retirement as part of any reform that make the program solvent. As part of a plan to strengthen the safety of that nation’s most vulnerable citizens, lower-income seniors should receive more targeted assistance than those who have had ample opportunity to save for retirement.

While certain details of the Commission’s Social Security proposals, particularly on the tax side, are of debatable merit, the Commission undoubtedly made positive steps forward on bipartisan solutions to strengthen Social Security. The House-passed budget builds upon the Commission’s work, forcing action to solve this pressing problem by requiring the President to put forward specific ideas on fixing Social Security.

In a shared call for leadership, the budget also puts the onus on Congress to offer legislation to ensure the sustainable solvency of this critical program. As Stephen Goss, Chief Actuary for the Social Security Administration, put it in a House Budget Committee hearing, “ Our Trustees and everybody who speaks on this has opined extensively about the value of acting sooner rather than later, so that we can have gradual changes phased in and we have more options if we act relatively soon.”

Both parties must work together to chart a path forward on common sense reforms, and the House-passed budget provides the nation’s leaders with the tools to get there.