Social Security is of vital importance to the United States. Although most people associate the program with its retirement benefits, Social security is most accurately thought of as a family protection program. In addition to providing a guaranteed floor of retirement income, Social security is the nation's largest children's program and biggest disability program. More than 3 million children-including virtually all of those who lost parents in the September 11 terrorist attack-receive monthly benefits. So do about 6 million workers with disabilities, including thousands of American soldiers wounded in Iraq and Afghanistan. Those soldiers' families and the families of soldiers killed in those wars receive Social security benefits, as well.
Because Social security is so important, President Bush stirred up a great deal of anxiety among Americans when he claimed that "the crisis is now" for this essential American program. In discussing Social security, the President has dramatically warned that if "we don't start moving on [Social security reform] now . . . the system will be flat broke," and "bankrupt" and "flat bust."
Headline-grabbing as his language is, the President's words are ill advised and misleading. Bankruptcy is a meaningless concept when applied to Social security: Unlike private employers who sponsor pension plans, the government is permanent and cannot go out of business. Also unlike private employers, the federal government has the Constitutional power "to lay and collect taxes," as well as the authority to issue and sell Treasury bonds. From 1943 to 1950, the law provided that in the event that Social security had insufficient funds to pay promised benefits, the shortfall would be made up by general revenue of the United States. If that provision were still part of the law, alarmist cries of potential bankruptcy would disappear instantly.
From the beginning, Social security has been prudently and conservatively managed. Unlike the rest of the federal government, the program has no authority to borrow, but rather must have sufficient cash on hand to meet promised benefits. Consistent with prudent management, program trustees issue annual reports detailing Social security's financial condition. Contained in the annual reports are projections of the program's income and outgo for the current year of the report, as well as for every subsequent year for 75 years into the future.
A 75-year valuation period is much longer than the valuation period used by the private sector for private pension plans and generally longer than the period used for the public programs of other countries. Nevertheless, for the U.S. Social security system, the trustees have concluded that 75 years is an appropriate length of time, because three-quarters of a century covers the working lifetime plus the retirement period of almost all workers. Americans who are age 20, just starting their working lives at the beginning of the valuation period, will be age 95 (if still alive) in the last year of the valuation period.
The anxiety-producing claims about future bankruptcy are the result of recent reports by the Social security trustees, which state that in about 35 years, if no action is taken before that time-an inconceivable scenario-Social security may have insufficient income to cover every dollar of benefit costs. Ironically, out of all federal programs, Social security has been singled out for these worrisome claims about bankruptcy because of the conservative requirement that it maintain a balanced budget. Although the President would be loath to make the point, if deficit spending were to be the definition of bankruptcy in a federal program, then the entire federal government-other than Social security-is bankrupt right now and has been for more than four decades.
Unlike Social security, which has always maintained sufficient funds to cover its benefits, the debt of the entire federal government has increased every year since 1960. …