In a bit of new old news, Social Security adds to the federal deficit. This non-shocking piece of news continues to be either ignored or underreported since the political class is petrified of having the geriatric brigade occupying the front lawns of their homes. The current unfunded liability of Social Security is $8.6 trillion over the next 75 years. It adds $165 billion to the budget deficit. This is all due to the payroll tac cut, a dismal economy, and an incremental number of Americans entering retirement age. So, the real question, which has been asked 576432 times, is when will we do something about this.
When Social Security was instituted the average time between retirement and death was two years. With advancements in medical fields and pharmacology, we have been able to increase American life, and retirement age, by two decades. If such developments were factored into the methodology of how benefits were distributed – and on an incremental scale – then this wouldn’t have been such an issue. That is the pain would have been felt to a lesser degree.
However, Democrats aren’t going to budge. Andrew Biggs of the American Enterprise institute and former principal deputy commissioner of the Social Security Administrationwrote on Real Clear Markets on October 3 that “in late September, 29 Senate Democrats signed a letter opposing Social Security benefit cuts, for either current or future retirees, as part of any budget deal. Senate Majority Leader Harry Reid said, ‘Social Security has contributed not a single penny to the deficit. So we can talk about entitlements as long as you eliminate Social Security.’ The AARP is nine cents less hardline, with CEO Barry Rand merely claiming, ‘The fact is, Americans pay for Social Security, and it hasn’t added one dime to the deficit.’
Concerning the AARP claims, Biggs wrote that:
Budget wonks use two main measures of the budget deficit: the “on-budget” balance, which includes everything except Social Security and the postal service, and the “unified budget,” which merges the on- and off-budgets together. If, for example, the on-budget was running a deficit of $100 billion while the off-budget ran a surplus of $100 billion, the unified budget would be in balance.
The unified budget approach is by far the most common for both budget wonks and the media. As a 2005 AARP policy analysis stated, “The [Congressional Budget Office], the U.S. General Accounting Office, and other agencies that produce budget documents and analyses think that the unified budget concept gives the most complete picture of total federal revenues, spending, surpluses, and deficits.” When you read that the Obama White House projects a 2013 budget deficit of $901 billion, that’s the unified budget deficit they’re referring to.
And on a unified budget basis, when Social Security’s financial position worsens the budget deficit grows. Social Security today contributes about $53 billion to the budget deficit-$165 billion if we include the temporary payroll tax cut designed to stimulate the economy-rising to $100 billion by 2020 and never looking back. It’s as simple as that. Is Social Security the main driver of today’s $1.3 trillion unified budget deficit? Of course not, and no one said it is. But it’s not pennies or dimes either, as the left would have you believe.
By the way, AARP is the lobbying group that swindled the taxpayers out of $2.8 billion dollars and blocked health care reforms that would’ve save their members $415 in premiums. Stay classy folks.
However, for the executive leadership at the AARP and the Democratic Party, it’s time to face facts. It’s not 1940. A time where there was 42 workers for every retiree. Now, it’s a paltry 3.1 worker per retiree. By 2030, when all the baby boomers are retired, it’ll be 2.1 workers per retiree. As George Will noted in a lecture at the U.S. Naval War College in Providence Rhode Island in February of 2011, those numbers, especially the 2030 figure, is based on the assumption that our country will maintain a healthy level of immigration – both legal and illegal. Today, tomorrow, and every day for the next two decades 10,000 baby boomers will became eligible to receive Social Security and Medicare benefits in their respective states. The population that is classified as “very elderly,” people who are 85 or older, are the fastest growing demographic in the country as a percentage of the population. That also spells trouble for Medicare, but that’s a different story.
Biggs wrote that “in the end, Social Security is similar to other federal programs-the government collects money in a given year and it pays it out the same year… Congress shouldn’t change Social Security rules precipitously -after all, older Americans have made their retirement plans and reform shouldn’t pull the rug out from under them. But most reforms would be implemented only gradually.”
We can start by raising the retirement age to at least 69 and, as George Will has advocated, “change the indexation of benefits from wages to inflation and half of the unfunded liability disappears.”