WASHINGTON, Oct. 18 (UPI) -- Social Security, which has provided a safety net for America's senior citizens, the disabled, and family survivors, will be in the red by 2017.
This is not a secret. Economists of all stripes have been predicted this for some time, but that does not mean America can wait 15 years to fix it. The safety net has been fraying for some time and, with Americans living longer and the baby boomers beginning to retire, spot mending is not enough.
The net must be rewoven.
Back in 1940, when Ida Fuller received the first Social Security benefit check, there were 42 active workers for each recipient. Today, there are just three active workers for each beneficiary.
The politics make reform difficult. Some politicians say no action is needed. Still others fear any effort to touch what has been called the "third rail of American politics." We must not fall prey to this thinking, because inaction is not an option. What was a good deal for our grandparents -- and many of our parents -- will be a bad deal for our children and our grandchildren. The longer we wait the more it will cost.
Let's look at some facts:
With American birth rates on the decline, more and more active workers are required to sustain each beneficiary; inevitably this will overload the pay-as-you-go system. The way the system is currently set up, the only options available to save the system are to cut benefits, increase taxes, or some combination of both.
Social Security now has over $20 trillion of debt -- called unfunded liabilities -- money that the system is already obligated to pay current or future retirees who have been contributing to the system via Social Security payroll taxes. For many workers, these taxes crowd out the opportunity to invest in private, and more lucrative retirement programs.
Here is an example:
A married couple each earning $40,000 -- combined with their employers -- pays 12.4 percent Social Security taxes totaling $9,920 annually. The average annual Social Security benefit payment in 2000 was $9,204. Anyone can see why Social Security faces tough times ahead.
Elected officials -- for too many years -- have chosen to close their eyes or demagogue the issue to scare our senior citizens. The numbers show you can't protect seniors by propping up a program that is steadily going insolvent. The excess funds contributed by workers and employers over the years have been spent on other programs -- there is no actual money being saved for the future. And the numbers are staggering.
The President's Commission to Strengthen Social Security estimates that "doing nothing would require benefit cuts of $4,000-$6,000 per year (at retirement) for young workers entering the workforce today." Or, "tax increases of over $2,000 per year for the average two-earner family."
In fact, a payroll tax increase of almost 50 percent would likely be needed, an unacceptable burden to place on America's younger workers.
Many American seniors agree. "For too long we have suffered from age-baiting and fear mongering by politicians," United Seniors Association President Charles Jarvis says. Citing just released results from their National Survey of Senior Voters -- age 50 plus -- the head of this conservative seniors groups reports that "senior voters oppose increases in the retirement age, cuts in COLAs (cost-of-living adjustments), and want taxes on Social Security reduced. And, they are deeply concerned about their children and grandchildren's retirement security."
A closer look at the survey finds that senior voters are sending five clear messages:
In addition to the three cited by Jarvis, senior voters do not have confidence in the long-term future of Social Security. Senior voters believe personal retirement accounts are important to future generations to have a better retirement.
That's good news for everyone, especially America's active workers and our young people, who want more control over their financial futures.
A key component to modernizing the Social Security system is giving workers a stake in their financial future. Workers must be allowed to invest a portion of their Social Security payroll tax in individually owned and directed personal retirement accounts. Workers can retire early without facing penalties inherent in the current system and would own their accounts, unlike in the Social Security program where ownership is an illusion.
The time to modernize Social Security has come. A new coalition called COMPASS --Coalition for the Modernization and Protection of America's Social Security -- unveiled a proposal last week in Washington. Their plan is based on three principles that make sense: 1) Guaranteeing current benefits for today's retirees and those soon to retire; 2) Providing today's workers an opportunity to own a portion of their Social Security contributions; and, 3) Preventing a decrease in benefits and precluding any increase in taxes.
Modernizing our Social Security system is the right thing to do. If America moves ahead, what was a good deal for our grandparents can be a better deal for our children and our grandchildren.
(Richard Olivastro is president of People Dynamics, a leadership development company, and founder of the Coalition For Connecticut. He can be reached via e-mail: [email protected])
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("Outside View" commentaries are written for UPI by outside writers who specialize in a variety of important global issues.)
