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Kicking Social Security down the road By Michael C. Guilmette Jr. Originally published on Feb. 26, 2009, in the Connersville News-Examiner. President Barack Obama on Tuesday talked of a “day of reckoning” the United States is facing because of the current economic crisis, promising the nation he would lead us to a brighter future.
Obama’s plan was clearly rooted in the present, which not surprising considering the amount of attention Americans are paying to the faltering economy. Looming on the horizon, however, is a brewing crisis that could easily have a far-ranging impact on not only the economy, but the American society in general — Social Security insolvency. Presumably, Obama will address the issue at some point during his presidency, but how willing he will be to plant his foot on the so-called “third rail” of politics has yet to be seen. Social Security is the largest social program in the United States, amounting to 37 percent of the federal budget and 7 percent of the gross domestic product, easily eclipsing the defense budget. But even with this massive level of spending, the program is going to go broke. By 2041, the majority of Americans currently in the work force will be retired or approaching retirement. When this happens, the Social Security Trust Fund will no longer be able to supply the funding level of benefits required by law for the anticipated number of retirees. Because of the increased life expectancy in the U.S. and the fact that now-retiring baby boomers outnumber their Generation X children, the world’s largest entitlement program will be strained to the breaking point. These concerns are already weighing on the minds of the younger members of the workforce. A 2008 study by Charles Schwab found among the 20-something Generation Y, 34 percent do not expect to see any Social Security benefits when they begin reaching retirement age in the 2050s. Social Security benefits provide a mere subsistence level income for retirees, and financial planners as well as the government have long advised workers to invest for their own retirement. But in a time when personal retirement savings are being ravaged by a sour market, the pending demise of Social Security should tolling like a bell. Instead, lawmakers keep kicking the problem down the road, preferring to focus on proposals to maintain the status quo. One such proposal came in October 2008 when Teresa Ghilarducci, professor of economy-policy analysis at the New School for Social Research in New York, told a House committee the government should consider rolling the popular 401(k) retirement savings accounts into Social Security and ending the tax breaks for worker contributions. Lawmakers looked at this proposal with some interest, since, had it been adopted, it would have netted the government $80 billion in revenue from what would effectively be a tax hike on workers. The proposal would have also resulted in the loss of individual choice in retirement planning, and it would not fix the overall problem. The latest attempt to fix the problem came in 2005 when President George W. Bush devised a plan to allow individuals to take a tiny sum of their Social Security account — 4 percent — and invest it in the markets. Pundits and critics alike called the plan “privatization” — using the same logic that says 96 percent government control of a bank is not nationalization — and panned the proposal fiercely. Congress ignored the plan, and Democrats took great glee in turning back Bush’s attempt to at least address the problem much the way they turned back the Bush administration’s attempt at oversight over Freddie Mac and Fannie Mae which may have averted the turmoil in the housing industry that led directly to this recession. During President Bush’s 2006 State of the Union address, he admonished Congress for not acting. “Congress did not act last year on my proposal to save Social Security,” Bush said, immediately followed by the Democrats rising lock-step to applaud what they saw as a victory. But Bush continued. “[Y]et the rising cost of entitlements is a problem that is not going away, and with every year we fail to act, the situation gets worse,” he said. Bush went on to propose a commission to study the impact of baby boomers on the system, but in essence, the president himself decided to kick the problem down the road. He was dealing with the now-abandoned war on terror while walking the tightrope between protecting civil liberties and maintaining the safety and security of the country, so he did have more immediate concerns on his mind. So too does Obama have pressing concerns, and presently, Social Security does not top that list. Aside from the immediacy of the financial crisis and the recession, Obama has the advantage that the Social Security collapse will happen decades after he leaves office, partially shielding him from any blame. We do not know what will happen when the IOUs in the Social Security system come due for a government that cannot pay them, but we — those of us who are going to have the misfortune to witness this — will likely see some combination of tax hikes and benefit cuts that would affect us literally for the rest of our lives. Depending on how serious the collapse is, the government may even resort to confiscating private retirement accounts to make ends meet. But again, this day is decades away, and that less than bright future is one the current president could get away with not addressing in any substantive way during his time in office. However, if Obama truly wants brighter days ahead and the opportunity to fix Franklin D. Roosevelt’s landmark program, he will step firmly onto the third rail and not allow the problem to again get kicked down the road. • Guilmette is managing editor of the News-Examiner. He may be contacted at mguilmette@newsexaminer.com. |
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Copyright © 2009, Michael C. Guilmette Jr. |
“The time to take charge of our future is here,” the president said to a joint session of Congress, promising help for banks while cutting wasteful spending and expanding government benefits.
