Social Security in crisis? Hardly.

Despite doomsayers' predictions, the program is solvent, effective, and highly likely to continue that way.

from the December 3, 2007 edition

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The shortfall in Medicare finances is far more serious: about $40 trillion.

One difficulty: Most long-term economic forecasts have proven decidedly inaccurate. Dean Baker, also a CEPR economist, points out that many aspects affecting Social Security costs in the future are unknown. For instance, will workers retire earlier or later?

There are other unknowns: fertility and mortality rates, immigration levels, real interest rates, the level of economic prosperity, and so on.

"There is uncertainty surrounding these," says Gary Engelhardt, a Syracuse (N.Y.) University economist. But he accepts the view that Social Security is in "crisis," regarding the Trustees' middle projections as "the best estimates, given what we know now."

From an economic standpoint, fixing Social Security is "really very doable," he says. It is another matter from a political standpoint.

Democrats tend to talk about eliminating any financial gap by raising taxes on the well-to-do. Sen. John Edwards, for instance, suggests making those earning more than $200,000 a year pay Social Security taxes on the amount over $200,000. Next year, earnings up to $102,000 are subject to the payroll tax.

Sen. Hillary Clinton has refused to say what she would do about Social Security, except appoint another commission. "That's realistic," holds Mr. Baker.

Republicans Rudolph Giuliani and Fred Thompson rule out Social Security tax increases. But Mr. Thompson does have a plan to cut benefits over time by indexing benefits to inflation, not the level of wages.

Research by Professor Engelhardt and Jonathan Gruber of the Massachusetts Institute of Technology affirm the basic merits of the Social Security system. They find that Social Security pensions reduced the poverty level among elders from 30 percent in the late 1960s to less than 10 percent in 2004. After inflation, Social Security benefits have doubled in generosity in that same time span.

That's one reason that Social Security remains the "third rail" of politics, as President Bush found out when his partial privatization proposal failed.

And that generosity is why, in the future, politicians will find Social Security benefits cuts hard to sell to the public.

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