Tuesday, March 31, 2009

The state of Social Security

Upon being re-elected in 2004 President George W. Bush vowed to spend some of his accumulated political capital on reforming Social Security, claiming that without profound changes that it was headed for bankruptcy. Part of the proposal involved allowing citizens under a certain age to invest part of their social security taxes in the stock market.

Democrats pronounced the idea foolish and said that worries about social security's fiscal future were a product of Bush's imagination. Even years later some are still congratulating themselves on defeating Bush's plan.

I thought about that when I read this in today's Washington Post:
The U.S. recession is wreaking havoc on yet another front: the Social Security trust fund.

With unemployment rising, the payroll tax revenue that finances Social Security benefits for nearly 51 million retirees and other recipients is falling, according to a report from the Congressional Budget Office. As a result, the trust fund's annual surplus is forecast to all but vanish next year -- nearly a decade ahead of schedule -- and deprive the government of billions of dollars it had been counting on to help balance the nation's books.

While the new numbers will not affect payments to current Social Security recipients, experts say, the disappearing surplus could have considerable implications for the government's already grim financial situation.

The Treasury Department has for decades borrowed money from the Social Security trust fund to finance government operations. If it is no longer able to do so, it could be forced to borrow an additional $700 billion over the next decade from China, Japan and other investors. And at some point, perhaps as early as 2017, according to the CBO, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes.
The coffers are running dry. Something has got to give.

Update: The author of this liberal blog says (in the comments section) that Social Security is "one of the most successful government programs of all time." If so, that's a pretty damning indictment of government.


Anonymous said...

I don't get it: if Bush's plan went through, and more Social Security money had been invested in the stock market, wouldn't that pool of money be much, much lower than it is now, suffering as it is? And wasn't that the whole point of blocking the measure, that it was too risky to expose that money to the stock market?

Colin said...

Yes, it would be worth less now, just like my IRA is worth less now. But I also have confidence that those investments will rebound and I will be better off in the long run when it comes time to retire.

Just think: the entire premise of the Democratic position is that the government can better invest my social security money than I can. I find that insulting.