Why a Social Security 'crisis' grows more remote
Like a mirage on a desert road, the Social Security "crisis" keeps fading into the distance.
Payroll tax receipts are currently pouring into the Social Security trust fund at a rate well in excess of benefits being paid to pensioners and the disabled.
But the Social Security trustees, in their March 30 report, still see a crisis on the highway ahead - though further away. They expect payroll taxes to fall short of benefits paid to retired baby boomers and others in 2015. So the system will have to start selling the Treasury bonds in the fund.
All those assets will be depleted by 2037, the trustees say. Last year, their report put this critical point at 2034. Their 1997 report said 2029.
The latest report of the Social Security trustees - all administration appointees - is great news for Vice President Al Gore.
His Republican opponent, Texas Gov. George W. Bush, has been advocating partial privatization of Social Security. Its improved financial picture - plus the volatility of the stock market - probably makes that option less appealing to many Americans.
Better benefits for parents
Mr. Gore is headed in the opposite direction. Last week he proposed bolstering the benefits of elderly widows (and widowers) and providing a "family-service credit" for men and women who leave the workforce to care for small children.
These "nonworking" parents would receive credit for having paid taxes on about $16,500 in wages for up to five years. This would boost benefits at retirement by an average of $600 a year for as many as 8 million stay-at-home parents.
Elderly widows, now getting two-thirds of the Social Security pensions of their late husbands, would receive three-quarters. This would add an average $1,000 a year to the pensions of as many as 3 million people. The cost to the system would be relatively small (about 0.15 percent of total payrolls, says one analyst). But it would speed the depletion of the trust fund.
Heidi Hartmann, chair of a National Council of Women's Organizations task force on women and Social Security, commends Gore's proposal. Women have the highest poverty rate in old age, she notes. For 25 percent of elderly women who live alone, Social Security is their only income. Without Social Security, the poverty rate for women over 65 would be 52.9 percent.
These women vote. Gore seeks their support in his presidential campaign.
Privatizers fire back
To economist Michael Tanner, however, the Gore plan is "the equivalent of choosing a new china pattern for the Titanic." Mr. Tanner directs the Cato Institute's campaign to move Social Security funds into private individual accounts that could be invested in stocks.
Tanner often paints Social Security to be in a dire state. He calls the projected 2037 depletion of the trust fund "insolvency." Some critics call it "bankruptcy."
To David Langer, a New York actuary and an expert on Social Security, such "loaded language" has done "a terrible number on the public. It has succeeded in frightening people" about the safety of their pensions down the road.
Mr. Langer holds that the Social Security trustees are too gloomy in their projections, which run 75 years ahead.
Of course, any projection of that length is close to fiction. Economists have trouble predicting the fate of the economy a year or two ahead, let alone 75 years.
The latest Social Security projections are more pessimistic than in 1996, despite the bustling economy and greater productivity since then, says Dean Baker, co-director of the Center for Economics and Policy Research in Washington.
The main reason the 2000 report extends the depletion date for the trust fund by three years is cuts in benefit levels put into place in the past five years.
That, says Mr. Baker, is because retirees' benefits are indexed to the rate of inflation as measured by the consumer price index (CPI). In the past five years, the Bureau of Labor Statistics has made a number of changes in the way it calculates the CPI. As a result, the annual inflation rate comes in about 0.5 percentage points lower.
This may be a more accurate measure of inflation. But the change in effect trims Social Security benefits by that amount.
It also means that the Social Security trustees have actually lowered their projected growth rates of real annual gross domestic product and wages.
Langer accuses the trustees of taking insufficient account of recent economic trends in their projections, thereby violating actuarial standards. By indicating an alarming picture of the Social Security program, it could "worry the public into accepting the benefit cutbacks and privatization [plans] that have been promoted by those who would benefit from them," he says.
Baker and others see a need for some minor changes in the system to boost its long-term solvency. "Moderate steps," suggests the Center on Budget and Policy Priorities in Washington.
But Congress will do nothing in this election year. And it isn't a crisis issue.
So what happens 37 years from now - if nothing is done?
Payroll tax revenues would still cover 73 to 74 percent of the benefits due, notes Baker. These trimmed benefits, he argues, would still have 15 percent more purchasing power than what Social Security pensioners get today.
To provide the full benefits promised, Washington would have to raise payroll taxes about 4.5 percentage points above the present 12.6 percent, says Baker.
Sounds awful. But Americans would still have wages - after the extra tax burden - about 50 percent higher than today, assuming the nation's productivity rises a modest 1 percent a year.
(c) Copyright 2000. The Christian Science Publishing Society