Members of President Barack Obama’s party insist that America’s retirement program is not insolvent and should therefore not be part of deficit reduction negotiations with Republicans who control the lower chamber of Congress. In fact, it is.
The two parties must come up with a program for fiscal consolidation before the end of the year or a combination of spending cuts and tax increases automatically goes into effect — the so-called fiscal cliff.
Democrats with to exempt most entitlements, especially Social Security, from reform while Republicans are opposed to tax increases when most observers agree that a combination of both is needed to reduce the nearly $1 trillion deficit.
Illinois Democrat Dick Durban was the most recent senior lawmaker to block Social Security reform. “Social Security does not add one penny to our debt, not a penny,” the senator said on ABC News’ This Week on Sunday.
The president’s spokesman Jay Carner insisted at the White House the next day that “Social Security is not currently a driver of the deficit. That’s an economic fact.”
Senate leader Harry Reid earlier told NBC News that Social Security is “not in crisis. This is something that’s perpetuated by people who don’t like government,” the Democrat from Nevada told Meet the Press last year. “Social Security is fine.”
But it isn’t. Social Security posted a $48 billion deficit last year. This year, it will come up more than $50 billion short. In 2015, as the retiree population grows, the shortfall is projected to be $86.6 billion. Between now and 2085, the pension program’s trustees estimate a total deficit of $9.1 trillion.
Democrats pretend that Social Security is covered by its trust fund into the 2030s. This is a fiction. Even the president’s Office of Management and Budget knows that the trust fund’s “balances” are nothing more than a “bookkeeping” device. “They do not consist of real economic assets that can be drawn down in the future to fund benefits.” Future benefits, says the bureau, “will have to be financed by raising taxes, borrowing from the public or reducing benefits or other expenditures.”
If we accept the notion that Social Security is “fine” for the next generation, there is no question that in 2040 by the latest it will not be able to pay seniors the full retirement benefits it is required to by law. There will simply be too many retirees on too small a population of working Americans.
Some fifty-six million Americans currently receive Social Security benefits. When the program was created in 1935, the earliest retirement age was sixty-five, one year above the average life expectancy. Although Americans grow much older on average now, beneficiaries can begin collecting at sixty-two and may well live in retirement for up to two decades!
The base of support from workers who pay into the system has shrunk dramatically in the meantime. In 1950, there were sixteen active workers paying for every retiree. Today, the ratio is three to one and there will be even fewer workers compared to seniors in years to come.
Little wonder that six out of ten American workers does not expect Social Security to be able to pay them benefits when they retire. Among working Americans under the age of thirty-five, the number is even higher. 76 percent of them do not expect to draw a Social Security check when they stop working. Nor should they. Whatever lawmakers say, Social Security is headed for insolvency. That is an economic fact.