- The Washington Times - Wednesday, August 18, 2004

Last month, another report was released on Social Security’s inability to pay future benefits, this one from the Congressional Budget Office. Unfortunately, this report will only serve to confuse and mislead the public further. The headlines read, “Report: Social Security may stretch to 2052.” Opponents of reform with personal retirement accounts heralded this as a reason not to act soon. But, here is the rest of the story:

Social Security is — and always has been — a pay-as-you-go system in which current workers pay the taxes that fund benefit checks for current retirees. For the past 20 years, due to tax increases imposed in 1983, the Social Security system has been collecting more taxes each year than are needed to pay benefits. But the money has not been saved. Instead, it has been spent on other federal government purposes. In reality, the Social Security Trust Fund contains no cash, just government bonds. These bonds amount to IOUs that will some day need to be repaid.

Beginning in 2018, Social Security payroll taxes will no longer provide enough revenue to pay promised benefits to existing retirees. At that point, the Social Security Administration will begin cashing in those bonds. But where will the money come from to pay off the bonds? Unless Congress decides to reduce Social Security benefits (an unlikely option), legislators will then have only two other options. They can begin cutting other government programs or they can increase income or payroll taxes.

Let’s assume Congress decides to cut government programs to cover the Social Security shortfall. How much would have to be cut? The numbers are mindboggling. To give you an idea of the magnitude of the problem, here are some examples of possible program cuts.

According to the Social Security Trustees, in the first year of Social Security’s cash deficit — 2018 — the shortfall is relatively small, estimated at only $16 billion. Using the present cost of government programs, we’d have enough money to make up this shortfall if we eliminated the Environmental Protection Agency, Head Start and the Food and Drug Administration.

By the following year, 2019, the shortfall more than doubles. So, added to the first round of cuts, we’d have enough to pay Social Security benefits if Congress also eliminated the Women, Infants and Children nutrition program, the Centers for Disease Control and Prevention, all federal student loans, all federal food-safety inspections and the Small Business Administration.

In the third year, Congress could make up the additional deficit by eliminating the Department of the Interior, including money for the Fish and Wildlife Service, the National Parks and the Bureau of Indian Affairs.

Within three more years, additional cuts comparable in size to the food stamp program and Supplemental Security Income would be required. And it gets worse every year. By now, you get the picture.

So, don’t be lulled into complacency by political rhetoric about Social Security’s trust fund lasting until 2042 or 2052. It is a false promise, at best. Every reputable government agency — from the General Accounting Office to the Social Security actuaries to the Congressional Budget Office — agree on this basic fact: Starting in a few years, Congress will have to decide whether to cut existing programs or raise your taxes in order to pay off the trust fund bonds.

Given the obvious difficulty of enacting the deep cuts we have just described, few political observers believe that Congress will cut other programs to make up the shortfall. That leaves tax increases as the only remaining option — which is why some elected officials want you to think the problem is far away in “never never land.” The sooner Congress acts, the more options will be put on the table. But, if Congress waits, younger workers had better get ready to open up their wallets.

Leanne Abdnor is president of For Our Grandchildren. Tim Penny, Minnesota Democrat, is a former congressman and Advisory Council chairman of For Our Grandchildren. Both are former members of the President’s Commission to Strengthen Social Security.

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