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America’s Social Security system is headed for trouble, two trains rumbling toward a collision. One train rumbles on tracks laid down by financial promises made when this New Deal-era program was established. The second travels on a path set by long-term demographic trends. To avoid the wreck, we need to change the courses of the trains, and the time to do it is long before the conductors on these trains can see each other.
Without significant changes, the question is not whether this accident will happen, but when. The demographic trends pushing us toward disaster are simple: birthrates are going down while people are living longer. This was not a problem in 1935 when President Franklin D. Roosevelt founded the Social Security program. With an average life expectancy of 64, only 54 percent of workers were expected to live long enough to collect their checks. Today, the U.S. Census reports the average life expectancy is 77.2 years and increasing. The Department of Health and Human Services reports that by 2050, American men will live an average of 79.7 years and women will live even longer.
These trends will be amplified when 76 million Baby Boomers hit retirement age. Born between 1946 and 1964, they will begin retiring in 2008, and threaten to swamp the Social Security system.
For many years, there was no problem with Social Security, because the abundance of workers paid far more into the program than it provided to retirees. The excess money was placed in something called the “Social Security Trust Fund.”
Unfortunately, by law, the Trust Fund is required to save the excess payments in U.S. Treasury bonds which are, for lack of a better word, “IOUs” from taxpayers. The money itself has been spent. This means the minute the Social Security system takes less in from workers than it pays to retirees, it will have to draw on those bonds, which will have to be made good by taxpayers. This shortfall is predicted to begin as early as 2018.
Inaction is out of the question. According to the Heritage Foundation, if Congress does nothing to reform the system, Social Security will need general fund infusions to make up the difference in tax revenues and benefit payments amounting to $72 billion in 2020, $275 billion in 2030, $429 billion in 2050 and $719 billion in 2070. The long-term projections of Social Security's financial health will continue to worsen because, with each passing year, a surplus year passes and a deficit year is added in the calculation.
Compounding this problem was the fact that changes in Social Security also weakened the financial health of the system. Originally, initial benefits at the time of retirement were linked to inflation, but in the 1970s they were pegged to the rise in wages, which tend to go up faster than prices. Coupled with demography and the impending retirement of the Baby Boomers, the Social Security system is headed for a disaster.
Numerous proposals to save Social Security are on the table, and I look forward to talking with my fellow Texans and working with my colleagues to craft policy changes which will honor present commitments, while providing a permanent solution.
While we may not agree on what the best options are at this point, it is unacceptable to pretend there is no problem. The financial future of Social Security is determined not only by demographic trends; it is affected by the promises made when the program was established. We have a window of opportunity to remake the program so the promises made today will be fulfilled tomorrow without mortgaging the future of our children and grandchildren.
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