THE SOCIAL SECURITY TRAINWRECK
June 22, 2004
A new report by Congress' official budget shop, the Congressional Budget Office, sent the Social Security universe into a tizzy. The CBO report says Social Security's long-term debt is slightly smaller than the $10.4 trillion price tag estimated by Social Security's trustees back in March.
Add Medicare and the problem is much worse and much more immediate. The two programs combined will consume all $789 billion they are expecting to collect in payroll taxes this year, but they will still need an additional $45 billion from general income tax revenues to pay fully promised benefits, says policy analyst Matt Moore.
In all, to pay Social Security and Medicare benefits from now on, we need $72 trillion in the bank today, earning interest. Needless to say, we don't have it. Thus, each generation will have to hand over more and more money, explains Moore:
- When Social Security began, there were 42 workers paying into Social Security for each retiree collecting benefits.
- By the time Medicare was put into effect in the 1960s, the ratio had fallen to 16-to-1; today, the ratio is 3-to-1.
- Between now and mid-century, after retirement of the 77 million Baby Boomers, the ratio will decline to 2-to-1.
This is important because Social Security and Medicare aren't savings programs. Instead, they pay benefits to today's retirees using contributions collected from today's workers. When current workers retire, their benefits will be paid by their children and grandchildren, and so on.
That's why so many economists suggest strengthening Social Security with the inclusion of personal retirement accounts. Under such a reformed program, Social Security's burden on future taxpayers would be dramatically reduced because each worker would save part of his or her own Social Security benefits, says Moore.
Source: Matt Moore, "Social Security still in trouble," Washington Times, June 21, 2004.
Browse more articles on Tax and Spending Issues