February 1, 2005

Signs of Crisis Are Clear

by Michael Tanner

Michael Tanner is director of health and welfare studies at the Cato Institute.

We can become embroiled in semantic quibbles over what constitutes a "crisis." However, the facts have a certain heft.

Social Security will begin running a deficit in less than 15 years — that is, it will begin to spend more money on benefits than it brings in by taxes. At that point, to continue to pay promised benefits, the program will have to draw on the Social Security Trust Fund.

Crisis deniers have made much of the trust fund recently, suggesting that it guarantees Social Security's solvency until 2042, or even 2052, according to some projections. However, it was President Clinton — not President Bush — who pointed out that: "These trust fund balances are available to finance future benefit payments … but only in a bookkeeping sense."

Clinton's fiscal year 2000 budget explained that trust fund assets are not "real economic assets that can be drawn down in the future to fund benefits." Rather, these funds are "claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures."

Thus, in less than 15 years, the federal government will have to begin finding billions of dollars to continue paying benefits — by cutting benefits, raising taxes or borrowing even more money. Overall, Social Security's unfunded liabilities total nearly $12 trillion, and the longer we wait, the worse it gets. Estimates suggest that each year that we wait to reform Social Security costs between $150 billion and $600 billion more.

That sure looks like a crisis to me.

But the larger crisis is not about the system's finances. It is about workers forced to pay 12.4% of their wages into a system that cannot pay them the promised level of benefits. It is about a system where workers have no real ownership of their benefits, and where low- and middle-income workers cannot accumulate wealth that they can use in retirement and pass along to their heirs.

We have an unfair system that is slowly going broke. Some commentators say this is acceptable and is not a crisis because they might be dead by the time the bill comes due. The mind boggles.

This article also appeared in USA Today on February 1, 2005.