Social Security and Its Discontents
Attarian, John, The World and I
John Attarian is a freelance writer who lives in Ann Arbor, Michigan and holds a Ph.D. in economics. He has contributed several book reviews and economics articles to The World & I. This essay is adapted from his book Social Security: False Consciousness and Crisis, published in September 2002 by Transaction Publishers.
The federal Old-Age, Survivors and Disability Insurance (OASDI) program, or Social Security, is projected to founder under the burden of supporting the huge baby-boom generation's retirement. Yet despite two decades of warnings about this, nothing is being done. The saying that Social Security is the third rail of politics--touch it and you die--holds true. Realistic observers warn that action will be more difficult the longer it is deferred, but fear of the political cost imposes paralysis.
The coming threefold crisis is familiar. Because the 1945--1965 baby boom was followed by much lower fertility, when the boomers retire, the OASDI's beneficiary population will grow much faster than its taxpayer population. Social Security's actuaries project the number of workers supporting each beneficiary to decline from 3.4 today to 2.1 in 2030. Thus, tax rates mandated under current law cannot suffice to pay current-law benefits.
Social Security's actuaries assess its long-term outlook by calculating its long-term actuarial balance--the difference between Social Security's projected stream of expenditures over the next seventy-five years and its projected stream of income plus the trust fund's initial assets. Actuarial balance is expressed as a percentage of "taxable payroll" (taxable labor income). The 2002 Annual Report of Social Security's board of trustees projects an actuarial deficit for 2002 to 2076 of -1.87 percent of taxable payroll.
In 2017, the actuaries project, the OASDI's costs will begin exceeding revenues. Social Security will then start liquidating its trust fund of Treasury debt, accumulated from revenue surpluses. Trust fund exhaustion is projected for 2041, after which revenues will suffice to pay 73 percent of program costs.
Beyond Social Security's demise, two other aspects of the crisis are even more important. One is unaffordability. Redeeming Social Security's trust fund will impose colossal costs. The fund's assets are projected to peak at roughly $7.2 trillion in 2026, then decline to zero by 2041. That is, the Treasury would have to raise roughly $7.2 trillion through taxes or, more likely, borrowing, over and above Social Security's own heavy taxes, in just fifteen years. This necessarily means huge budget deficits, which will starve the economy of credit and inflict economic stagnation.
The other is political trauma. Obviously, letting Social Security collapse will be politically perilous, but the options facing our politicians are also unpleasant. The massive Social Security tax increases of 1977 and '83 embittered taxpayers, and an attempt to save the OASDI through draconian tax increases will surely trigger political upheaval. Meanwhile, beneficiaries see benefits as an inviolable earned right, and many depend on Social Security. Their reaction to deep benefit cuts is equally predictable. Tax increases, benefit cuts, or their combination, then, are politically dangerous. Knowing this, politicians procrastinate.
Social Security's expansion to almost universal coverage--with almost all elderly Americans getting benefits and almost all working Americans paying taxes and eventually collecting benefits--has created a very dangerous political situation. Virtually everyone now has a serious stake in Social Security. Never before has almost all of our population been compellingly involved in a single government program that will likely experience grave financial difficulty or even insolvency in the next few decades. Social Security, in short, has vast potential for pitting not only generation against generation but the entire population against the government, thus creating an unprecedented political crisis. …