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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How this balance of negative and positive aspects shapes up for the long-term health of the Social Security system is unclear. Andrew Biggs, an expert at the American Enterprise Institute in Washington, guesses the opposing trends will "roughly offset" themselves.Skip to next paragraph
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By law, the Social Security Administration makes annual 75-year actuarial projections of the soundness of the system. Last March, under Bush, the Social Security Trustees reported the Social Security Trust Fund would be depleted in 2041. At that point, Social Security benefits would be paid from payroll-tax revenues. These would not cover fully the sums promised, perhaps about 75 percent.
Obama has yet to appoint all six trustees – three Cabinet secretaries, the Social Security Commissioner, and two private appointees – to the trust fund. So this year's report for 2008 could be delayed. Whereas the Bush trustees sounded gloomy for Social Security, the Obama-appointed trustees might voice more hope.
Nonetheless, Aaron suspects they may choose 2040 or even 2039 as the date for depletion of the trust fund, in order "not to lose credibility."
To Aaron, describing Social Security as in "a crisis" is "simply Orwellian … a misuse of language." He says some of those seeking privatization consciously used a "Leninist [political] strategy" of alleging falsely that the existing system was unaffordable and younger Americans would not receive Social Security benefits, while adding correctly that older workers would go untouched. Any financial shortages down the road could be fixed by relatively minor tweaks of the system, Aaron argues.
A new book by Jacob Kirkegaard of the Peterson Institute of International Economics and Martin Baily, now at Brookings, compares the American pension system with that of other industrial nations with an aging population.
"The design of Social Security is fundamentally sound," says Mr. Kirkegaard. "Compared with other countries, it works very well." He warns against fixing something that "is not broken."
Benefits could be made considerably more generous with a relatively small increase in the payroll tax, reckons Bernard Wasow, an economist at the Century Foundation. "I don't know if popular opinion would cotton to that," he says.