- Associated Press - Wednesday, August 11, 2010

Prospects are bleak for fixing Social Security’s financial problems as the government retirement-insurance program celebrates its 75th anniversary this week.

Many Democrats adamantly oppose any cut in benefits to reduce cost, and some won’t accept a gradual increase in the retirement age, something that was done in the last overhaul in 1983. Republicans say an increase in Social Security taxes is out of the question, even for the wealthier.

Unless Congress acts, Social Security’s combined retirement and disability trust funds are expected to run out of money in 2037. At that point, Social Security will collect enough in payroll taxes to cover about three-fourths of the benefits.

The rhetoric is creating a tough environment for President Obama’s bipartisan fiscal commission to come up with recommendations to improve the government’s troubled finances. Mr. Obama says everything should be on the table, and the commission’s co-chairmen - a Republican and a Democrat - have asked for civil discourse.

Not likely.

Social Security has been, is and will continue to be potentially deadly for the career of any politician who dares touch it.

While Mr. Obama’s commission was holding its latest meeting, dozens of House Democrats gathered on the steps of the Capitol to accuse Republicans of trying to wreck Social Security by creating private accounts, an idea with little support in Congress since President George W. Bush unsuccessfully tried it.

“Probably the months before an election are not the time to try to negotiate Social Security,” said John Rother, executive vice president of AARP.

The commission’s proposals are due in December, after congressional elections in November.

Despite the rhetoric, many experts think policymakers will eventually settle on a compromise: small cuts in future benefits coupled with small tax increases.

“You could put 10 moderates in a room, and they could come up with a package in a day that solved the long-term problem and combined tax increases and spending cuts,” said William Gale, an adviser to President George H.W. Bush’s Council of Economic Advisers and now co-director of the Tax Policy Center. “It’s not that hard to do.”

Social Security would be made solvent for another 75 years if payroll taxes were increased by about 1 percentage point for both workers and employers. It would also be fixed if Congress started taxing all wages, not just those below $106,800.

About 23 percent of the shortfall would be gone if Congress gradually increased the full retirement age from 67 to 68, according to the Senate Special Committee on Aging. Nearly a third of the shortfall would disappear if it was gradually increased to 70.

Social Security’s short-term finances are being hurt by a recession that shed more than 8 million jobs, reducing revenue from the payroll taxes that support the program. Social Security’s long-term finances will be strained as the 78 million baby boomers reach retirement age - and live longer as life expectancy increases.

For the first time since the 1980s, Social Security is paying out more money in benefits than it collects in payroll taxes. The program is projected to post surpluses again in 2012 through 2014 but will return to permanent deficits in 2015, its trustees said in their annual report last week.

The disability program is in even worse shape. The disability trust fund is projected to be exhausted by 2018, meaning Congress will have to act soon to address it.

The combined trust funds have built up a $2.5 trillion surplus over the past 25 years. But the federal government has borrowed that money over the years to spend on other programs. The government must now start borrowing money from public debt markets adding to the federal budget deficit to repay Social Security.

Over the next decade, the federal government will pay Social Security more than $1.5 trillion in interest, though the transfers are essentially an accounting procedure, switching money from one government account to another.