Social Security turned 75 today! While the program remains vigorous after all these years, it is beginning to show its age. Unlike those that depend on it, retiring Social Security is not an option, which means that action will be required. Whether it continues to thrive 75 years from now and beyond is up to us and the decisions we make in the near future.
We've spoken a lot about Social Security reform the last few days, in the context of solvency, sustainability, and direct effects on the budget. But we haven't yet talked about reform in the context of our overall fiscal and economic picture. On the fiscal side, our fundamental problem is the growth of entitlement spending, and this is driven by both health care cost growth and by population aging.
As we think about Social Security reform in the United States, it makes sense to look at what other countries are doing to reform their public pension systems. Facing serious fiscal crises, a number of countries have begun making serious changes to their public pension changes, recently. Many countries are well ahead of the curve, having made their programs sustainable years ago. Others have had to make changes recently, in light of new fiscal and economic realities.
We've talked a lot about the long-term outlook for Social Security (it is insolvent), its impact on the federal budget (it will increase debt held by the public in most future years), and why reform must go beyond solvency to also think about sustainability. But even once we all agree the program is in need of reform, it is important that we decide how.<
This week, The Bottom Line will be celebrating Social Security’s upcoming 75th birthday on August 14th, and our main present is a comprehensive look at its future. Today, we will be examining the two ways that Social Security can be thought of in respect to America’s budgetary future, and how each of those viewpoints affect the possibility for, and probable methods of, reform.
Gone and Back – The Senate has left for its August recess, the House will return this week (for a day). Congress will be back in session after Labor Day for a frenetic month before adjourning again in October for final pre-election campaigning.
When we think about Social Security reform, we tend to look at options in terms of their impact solvency -- measured over a 75 years period. In their latest report, the Trustees estimate this shortfall to be 1.92 percent of taxable payroll. While solvency is a necessary condition for Social Security reform -- it is not a sufficient one.
Today, the Social Security and Medicare Trustees released their annual reports on the financial status of the two programs. The Trustees now project that Social Security will face a deficit of $41 billion this year before returning to surplus in 2012. In 2015, deficits will return and will continue to rise thereafter, reaching 1.1 percent of taxable payroll in 2020 and 3.2 percent by 2030, before depleting the trust fund entirely by 2037.
Since Social Security was signed into law by Franklin D. Roosevelt on August 14, 1935, it has become the largest government social insurance program in the world and the U.S. government’s single greatest expenditure, constituting $678 billion in outlays last year (about 5 percent of total U.S. GDP and 20 percent of the budget). Also known as OASDI (or Old Age, Survivors, and Disability Insurance), the Social Security system in the U.S.
A few weeks ago, Fiscal Commission co-chair Erskine Bowles suggested that in designing a plan, "revenue as a percentage of GDP [should not] be much higher than 21%... [and] we have to work to make the tough choices to bring spending down to the same level"
Earlier this week, both Matt Miller and the Center on Budget and Policy Priorities criticized this spending target as far too low. Though we agree that spending cannot be brought down to its historical average overnight, we think that Bowles' goal of letting revenues rise to 21 percent of GDP and eventually bringing spending down to that level is perfectly reasonable.