Social Security Will not Insure in the Future

July 9, 2003

In a recent op-ed in the Detroit News, economist and author John Attarian urges consideration of Medicare and Social Security reforms. Not only are Social Security's financial obligations great, common misunderstanding of the system's "insurance" nature denies the system's failures adequate attention from the public. Excerpts of Attarian's op-ed, "Time Is Running Out to Fix Medicare, Social Security," follow:

"Now that the Iraq war is supposedly over, maybe we can tackle unfinished business at home—like overhauling Social Security and Medicare before they become unaffordable.

"According to the latest reports of the Social Security and Medicare Boards of Trustees, spending for these programs will explode even before the baby boomers retire. Under the 'intermediate' or 'most likely' assumptions of the Social Security and Medicare actuaries, calendar 2003's total outlays for Social Security and Medicare are estimated at $757 billion, or 6.9 percent of gross domestic product.

"In 2007, when the oldest baby boomers, those born in 1945, will be eligible for Social Security's early retirement benefits at age 62, but have not yet gone on Medicare, projected spending will total $926 billion.

"In 2012, just nine years away, when boomers born in 1945-47 are eligible for both programs, projections are $1,281 billion, almost 70 percent higher than this year's figure, and about 7.28 percent of 2012's projected GDP.

"After all the boomers retire, it keeps getting worse. Can't the Social Security and Medicare trust funds help cover the costs? Not really.

"Think about it. The trust funds are really accounts at the U.S. Treasury, and their assets are unmarketable federal debt. When the baby boomers retire and Social Security and Medicare payroll tax revenues no longer cover the costs, Social Security and Medicare will start cashing in those IOUs.

"But where will Congress get the money to pay them off? From cutting other spending (fat chance), raising other taxes or borrowing from the public. All taxes are ultimately paid by individuals (you and me). As for borrowing, interest on publicly held federal debt is a cost which Uncle Sam is legally obligated to pay. With what? Our taxes.

"What matters is the cost—how much is spent on Medicare and Social Security. Whether the government takes the money to pay for it out of our right pocket (payroll taxes), our left pocket (general taxes) or our back pocket (borrowing) is less important than the size of the take.

"Our options aren't good. Reforming Social Security has special difficulties because most people believe Social Security is insurance, that it's in trouble because Congress is 'raiding the trust fund' and that benefits are an 'earned right.'

"In fact, Social Security is redistribution; its taxes are not insurance premiums reflecting risk. Congress is not stealing anything. The Social Security law has always required that Social Security surpluses be invested in Treasury IOUs, making the surpluses available to the Treasury for general use.

"Congress has already cut benefits and has the right to do so again, making the 'earned right' dubious. But people believe these myths, making substantial tax increases and benefit cuts politically suicidal.

"We need to get a handle on this. And we don't have much time left."

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