Obama faces larger problems than Social Security shortfalls
Despite troubled economy, its trust fund should still be able to meet pension payments for another 30 years.
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Such a suggestion makes Henry Aaron, a veteran analyst at the centrist Brookings Institution in Washington a bit edgy. Sure, he says, it's desirable to pay attention to Social Security, but "in the right way. It's better to do nothing than the wrong thing."
Obama spoke of Social Security right after calling for "comprehensive healthcare reform." Medicare and Medicaid are in far worse financial shape than Social Security. The nation's primary pension system could continue providing full benefits for decades to retirees and the handicapped without running short of money.
Economist Aaron worries that some Democrats will not be tough enough in bargaining with conservatives over Social Security changes if a bill comes before Congress. If that were to happen, the final bill could end up with unnecessary benefit reductions, he says.
The president himself, it's reported, originally considered forming a bipartisan task force to propose Social Security reforms to avoid a political dead end. But that idea ran into opposition from some Democrats and was dropped.
President George W. Bush proposed in 2005 partial privatization for younger Americans through personal savings accounts carved out of the fixed system. That proposal got nowhere in Congress.
Somewhat mysteriously, Obama mentioned creating "tax-free universal savings accounts for all Americans" in his address to Congress.
Given the economic crisis, a major alteration of Social Security involving extra risk would be an even harder sell today to Americans.
"All the arguments for Social Security have been strengthened rather than weakened," says Aaron.
For years the Social Security system has been running a surplus. Payroll-tax revenues have exceeded outgo for pensions and other payments, thereby building up reserves needed to deal with the numerous baby boomers just starting to retire.
The Congressional Budget Office projects the surplus for fiscal 2009 will be 40 percent less than assumed in the fiscal 2008 budget projections. A drop-off in tax revenues from millions of Americans who have lost jobs is among the reasons for this development. On top of that, some newly unemployed seniors may decide to collect their Social Security pensions right away, figuring they won't be able to get another job.
On the other hand, many older Americans have also seen their retirement funds badly damaged by the plummeting stock market. Some are deciding to work longer. As a result, they are continuing to pay into Social Security and not taking a pension.