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Recession aids in Social Security losses
Blank Social Security checks are run through a printer at the U.S. Treasury printing facility in Philadelphia, Penn.
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Kai Ryssdal: You take a good look at the age demographics in this country, and the news about Social Security today was only a matter of time. The Congressional Budget Office told The New York Times today that this year -- for the first time -- the trust fund is going to pay out more than it's bringing in from payroll taxes. That's about five years earlier than even the best guesses. So what gives? Why, a little thing called the Great Recession, don't you know?
From New York, Marketplace's Alisa Roth has more.
ALISA ROTH: The basic concept of the Social Security system is simple: We pay in through payroll taxes. Retirees take the money out as benefits. For decades, we paid more in than we had to pay out. But the recession changed that.
Maya MacGuineas is director of fiscal policy at the New America Foundation. She says for one thing, less money is flowing into the system overall.
MAYA MacGuineas: Wages were dropping, with so many people out of work and not getting raises. So the trust funds were collecting much less money than we expected.
At the same time, we had to pay more money out.
MacGuineas: More people couldn't find jobs so they were retiring earlier and going ahead and collecting Social Security benefits.
Analysts always knew there'd eventually be more retirees than workers. And that we'd need more cash than there would be in the system. But they predicted it would be at least 2016 before the balance tilted.
MacGuineas says the change is an important reminder that Social Security desperately needs an overhaul.
Henry Aaron is a policy analyst at the Brookings Institution. He says nothing fundamental about the system has changed.
HENRY AARON: The underlying facts are the same. Adjustments will need to be made, and they aren't very large. Small reductions in benefits or small increases in taxes would restore balance to the Social Security system.
There's no need for retirees to panic just yet. The Social Security Administration says benefits won't change this year.
And in a few weeks, the agency will come out with its own projections about the state of the system.
I'm Alisa Roth for Marketplace.
Social Security is a pyramid scheme. This unpleasant milestone is merely a reminder of that fact. We don't need to *fix* Social Security--the only way to do that for any serious length of time is to have another baby boom--we need to get *out* of it.
As Henry Aaron notes, rather small adjustments can be made to bring Social Security into long range balance. See this report for more than 30 options for 'fixing' the program: http://www.nasi.org/sites/default/files/research/Fixing_Social_Security.pdf
Also to note, a nationwide poll showed that the vast majority of Americans say it is critical to preserve Social Security even if it means that working Americans have to pay higher taxes to do so. Here is a link to a PDF of the full report: http://www.nasi.org/sites/default/files/research/Economic_Crisis_Fuels_S...
I was disappointed when I heard Alisa Roth's story on Social Security that she perpetuated the misapprehension that, now that SSA is taking in less than they are paying out, the system must be "balanced" by cutting benefits and/or raising the FICA tax. She correctly points out that, for many years (almost 75 years, in fact), the SSA has collected more than they have paid out in benefits. Doing the math, they should have a substantial amount saved up to cover the current shortfall. Of course, the federal government borrowed that money to cover other expenses. Perhaps it is time for SSA to call in that debt. The extra money that was collected over the past 3/4 of a century should be paid back with interest. Only then should we consider re-adjusting the FICA/Benefit equation to balance the cash flow. By the time that is done, most of the baby boomers should have passed, and perhaps we will again have more people working than collecting benefits. Of course, I realize this means raising other taxes to cover the cost of paying back the SSA (this is why I specifically referred to FICA in previous statements). The FICA tax is separated from the federal income tax because the money is supposed to be held in trust to fund the Social Security system, not spent on the general budget. The fact is that previous generations chose to use the Social Security Trust Fund to disguise the true size of the deficit, and thus keep taxes unrealistically low. Now that those people are retiring, those of us still in the workforce need to face up to the true cost of governing the world's greatest superpower and start paying the bills. That includes paying back the debt to Social Security that now threatens our future retirement far more than their current one. It's not fair, but it's too late to change the past. Time to take a more responsible approach to the future.
