Is Social Security broke or not?

(MoneyWatch) COMMENTARY The 2012 Annual Report of the Board of Trustees of the Social Security program was released earlier this week, citing 2033 as the year the program's trust funds will run out for the retirement and disability income programs. This is three years earlier than the exhaustion date projected in last year's report.

I'm sure the report's release will unleash the usual rhetoric from both sides of the Social Security funding issue. The AARP took a refreshingly middle of the road approach:

"For the millions of Americans who have paid into Social Security and Medicare and are counting on their benefits, today's reports offer a clear assessment of the true status and long-term challenges facing these critical programs. The reports underscore the need for an open, national conversation focused on strengthening retirement security for today's seniors and future generations.

"The Social Security Trustees reaffirm that the program can pay full benefits until 2033, and roughly three-quarters of promised benefits beyond that time ...

"However, the Trustees also make clear that Social Security's long-term financial challenges must be addressed. While Social Security is not in crisis, it will require modest changes to ensure current and future generations will receive the benefits they've earned. The longer Washington waits to address these challenges, the more difficult it will become for workers who are trying to plan for their future."

Social Security: Trust fund in the red by 2033

I'm glad to see AARP state that changes need to be made to strengthen Social Security -- and sooner rather than later.

Both the AARP statement and the Trustees Report tell us that without any current changes to benefits or taxes, in the year 2033 and beyond, benefits would need to be reduced by 25 percent to be paid from taxes collected each year thereafter. I wouldn't exactly call a 25 percent benefit reduction in the year 2033 as "modest." Nevertheless, I believe the statements that Social Security can be sustained if we act today with modest benefit reductions and tax increases (yes, I said tax increases, not the squirrelly phrase "revenue enhancements").

According to the Trustees Report, Social Security could remain solvent by:

- Tax increases equal to 2.61 percent of covered payroll, or
-An immediate benefit reduction with a total value of 16.2 percent, or
- A combination of the two approaches.

This isn't good news, but it's not the end of the world either. And I would classify a combination of the above changes as "modest" if we just find the political will today to make these necessary changes.

Even if we make the above changes, we'll still have problems before 2033. In 2011, Social Security's income from taxes fell short of benefit payments and administrative costs by $148 billion; the projected shortfall for 2012 is $165 billion. A large reason for this shortfall is the temporary reduction in Social Security payroll taxes for 2011 and 2012. To make up this shortfall, Social Security will dip into interest earnings from the $2.7 trillion Social Security trust fund. However, interest payments from the trust fund are part of the total government deficit, which is projected to be $1.33 trillion in 2012.

This tells me a few things. First, we don't have spare change lying around to make up the ongoing shortfall in Social Security. If we were running an overall budget surplus, we wouldn't be as worried about this Social Security shortfall. But we're running large budget deficits, so we can't talk about Social Security without talking about the total federal deficit.

And second, we can't make much of a dent in the total federal deficit just with changes to Social Security alone. In 2012, the projected Social Security shortfall by itself represents about 12 percent of the total budget deficit. So we'll need to implement some pretty significant budget cutbacks and tax increases in other areas to reduce the federal deficit.

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If we adopted modest tax increases and benefit reductions, we'd still be in one of the best places to live on the planet. Let's stop whining about any amount of tax increases. Let's stop digging our heels in resistance to any reductions in Social Security benefits. Let's stop using inflammatory language, calling Social Security a "Ponzi scheme," that poisons the necessary discussions to make compromises.

We'll still have a great country if we need to pay more taxes, work a few more years until retirement, or if our benefits don't increase as fast as previously. We're a resilient nation, and we'll find a way to make ends meet in retirement with the changes that are necessary. But we've got to find a way to protect the most needy seniors while spreading the costs among everybody else. This will involve our political leaders making reasonable compromises, and putting our country's interests ahead of their political parties and ideologies.

[Carly_EngageAmerica]

All of the following solutions will substantially eliminate these problems: Reducing benefit payments by 5% AND increase the retirement age to 70 over time; increasing both the employee and employer contribution immediately by 1.1% for income up to $106,800 (its current limit); reducing benefit payments by 5% AND increase both the employee and employer contribution immediately by 0.05% each year for the next 20 years for income up to $106,800 (its current limit); removing the $106,800 limit and count all income towards the SS tax; decreasing the cost of living adjustment by 1% per year AND raise the retirement age to 67; or taxing income over $106,800 at 3%, index the retirement age to longevity AND decrease cost of living adjustment by 0.5% (http://eng.am/oTlck2 ).

[Carly_EngageAmerica]

% AND increase the retirement age to 70 over time; increasing both the employee and employer contribution immediately by 1.1% for income up to $106,800 (its current limit); reducing benefit payments by 5% AND increase both the employee and employer contribution immediately by 0.05% each year for the next 20 years for income up to $106,800 (its current limit); removing the $106,800 limit and count all income towards the SS tax; decreasing the cost of living adjustment by 1% per year AND raise the retirement age to 67; or taxing income over $106,800 at 3%, index the retirement age to longevity AND decrease cost of living adjustment by 0.5% (http://eng.am/oTlck2 ).

[willnotgoquietly]

Fifty years ago I began contributing to the Social Security system. In the intervening period I never gave much thought to it, but I realize now that at a subliminal level I had the sense that my country had my back, and that I could do no less than respond in kind. I didn't anticipate that I'd ever need a return on my investment, and can recall thinking that I'd just not participate in the system when I retired. After all, there'd always be Americans who through circumstances of birth or health or misfortune would need it more than me.

Well, as they say, life happens, and during the time I was contributing to the system I had eight traumatic brain injuries and three strokes. However, I'm a medical anomaly. I can walk and talk and write about as well as I ever did, and I'm the subject of two "are you kidding me" articles in a professional medical journal. I've not only coped, in many ways I've thrived, but in other more fundamental ways I have not. So, here I am, receiving an SSDI benefit that's 70% less than the take home pay from my last professional job.

Don't get me wrong, I'm not complaining. I'm grateful that President Roosevelt and his colleagues on both sides of the congressional aisle had the foresight to require me to contribute to a federal retirement system. But the sense that my country has or has ever had my back is fast eroding. Apparently there are now a substantial number of my "countrymen" who would rather see me eat catfood, live in a refrigerator carton and never get sick, but if I do, die quickly and quietly.

I'm feeling threatened. What a boon to know that those who would see me dead have provided an alternative. I think I'll stand my ground.

[kbibbee]

Lowering benefits is not acceptable as they are already low to start with.
I have no problem with a tax increase to fix this now instead of waiting until later. But I agree the increase should include raising the cap on the amount of wages taxed for SS. The cap should be raised significantly $500K or even more. If that doesn't make SS solvent by itself, then the tax rate should be increased.
I'm surprised this article doesn't explore raising the cap on SS taxable wages. This would be the least objectionable solution and minimize or eliminate the need for any rate increase.

[Lucky12345678]

Typical Democrat response to a Corrupt and bankrupt system, raise taxes! Social Security is financed by a 6.2 percent tax on the first $110,100 in wages. It is paid by both employers and workers. Congress temporarily reduced the tax on workers to 4.2 percent for 2011 and 2012, though the program's finances are being made whole through increased government borrowing. The Medicare tax rate is 1.45 percent on all wages, paid by both employees and workers. So, in order to maintain Social Security in the future we simply get TurboTax Timmy to print more money. Three CHEERS for more government spending!!!

[democracy8]

I see that you have criticisms, but nothing constructive to offer.

[Adam_Smith_123]

The most obvious fix is not mentioned.

At the last fix, the max on SS was raised. Were it raised now to be comparable (after inflation and increase in national income) to the 1986 level, the max subject to SS would be $186,000, which would be enough to put SS back on a solid footing.

[democracy8]

The cap should be ELIMINATED, period!

[MaryWaterton]

I think Social Security will be insolvent long before 2033, probably closer to 2020. The government has a tendency to be unrealistically optimistic when it comes to the economic growth rates that underwrite all the promised socialism. We are sinking like the Titanic in an ocean of red ink. Believe your own eyes and ignore what they say. Use some common sense and prepare accordingly.

[democracy8]

If the government repaid all the money that they have "borrowed" from SS over the years and eliminated the cap, SS would be fine for perhaps centuries to come.

[[e-mail]]

Modest proposal - how about giving up miscellaneous wars for a year or two in order to save a few dollars?

[joedamico34]

Tax increases that is the way to go, no one wants less money when they retire. ALSO the government needs to STOP taking money out of Social Security for other things that is why it is going broke.
ALOS Republicans need to start working for the people again, all the people and not just the Tea Party and Grover Norquist signing pledges,
Republicans were voted in by the people to work for them and all they do is work for is the Tea Party and Grover Norquist. WE need to send the Republicans a message, vote them OUT in 2012 till they go back to working for ALL the people.
The Tea Party and Grover Norquist are the NEW communist party in America and they are sucking in most Republicans for the Fourth Reich, don't think so then just listen to Republicans speak. They are not your father's Republicans any more.

[democracy8]

Unfortunately, I must agree with you on this.

[dlnewco50]

Well said. As a former Republican, now a Neithercan, I am thoroughly disappointed with the leverage, above and beyond that of the constituency, that Grover N. has over the majority of the Republican party. Revenue needs to increase, not as license to back off efforts toward spending cuts, but rather as a step to making the country financially healthy. I understand that some people are in difficult positions without Social Security, but somewhere, sometime, as a general population, we got to get off that one note song, Me -- me -- me.
Abhorrent to me is passing this mess to my grandchildren.