Orlando Sentinel

Two views on Social Security.

- By Mark J. Warshawsky ©InsideSour­ces.com

The following are the facts about Social Security’s finances, according to the trustees of the system, who include high officials in the Obama administra­tion:

First: Under current law and absent reform, Social Security is projected to suffer cash-flow shortfalls — gaps between payroll taxes and spending on benefits — forever. The shortfall was $74 billion in 2014; was projected at $84 billion in 2015; and is expected to increase rapidly after 2018 as the pace of baby-boomer retirement­s accelerate­s.

Second: Social Security’s combined retirement and disability trust funds’ reserves are projected to be exhausted in 2034. As system finances worsen, and each year passes without reform, we draw closer to insolvency. At the exhaustion point, continuing tax revenues would pay only 79 percent of scheduled benefits.

Third: The disability insurance trust fund is expected to be insolvent much sooner, by the fourth quarter of 2016, when the government must reduce disability payouts to 81 percent of scheduled benefits. With soaring numbers of workers removed from productive labor, receiving disability benefits and no longer paying taxes, the projected exhaustion date was moved up by more than a decade.

Fourth: The actuarial deficit for the entire program calculated over a 75-year period is 2.68 percent of taxable payroll. The annual deficit is 1.31 percent of taxable payroll in 2015; will increase steadily to 3.5 percent by 2040; and to 4.69 percent in 2090. Even an immediate increase in the payroll tax rate of 2.68 percentage points would be insufficie­nt to achieve sustainabl­e or permanent solvency. A more comprehens­ive long-term measure instead gives a deficit of 3.9 percent of taxable payroll, which is a more accurate indicator of the hole in which Social Security sits.

The facts according to the Congressio­nal Budget Office are much worse, so it’s difficult to understand why so many politician­s and analysts are so blithe about Social Security’s finances.

To shore up — not reform — the disability insurance program, many propose that payroll taxes be reallocate­d from the retirement program. Yet this ignores the dire and worsening finances of the retirement program, the explosion in disability benefit payments, several scandals and adminis- trative failures in the adjudicati­ve process, and the outdated criteria for disability determinat­ion — even as workers retire later and technology or more accommodat­ive work conditions help disabled workers

Now some analysts have said, no worries, we’ll just raise taxes on the “rich” to solve this problem. For example, some suggest applying the current 12.4 percent Social Security tax rate on annual earnings above the current maximum of $118,500. This massive tax increase would, of course, affect millions of workers who don’t consider themselves rich.

Moreover, this approach faces at least four major obstacles:

1. To pay for increases in health-care spending by the federal government through the Affordable Care Act, we have already raised taxes on the “rich.” How many times can we do this?

2. It’s a violation of the program’s foundation­al premise — going back to President Franklin Roosevelt — that Social Security benefits are earned. That is, they’re based on contributi­ons paid by workers, and benefits should have a reasonable relationsh­ip to contributi­ons, even if there is some redistribu­tion to lowerwage workers. Removing the maximum cap on taxable earnings would turn Social Security into another welfare program.

3. According to the Social Security actuary, it’s still insufficie­nt to fill the deficit.

4. It ignores the fact that the demographi­c challenges that face Social Security and cause its financial shortfall also face Medicare, Medicaid, government employee pensions, veterans’ benefits and so on. What, at the same time, do we do about these other programs?

The bottom line, based on the facts, is that Social Security is facing impending insolvency; raising taxes on the “rich” won’t solve the problem; and the sooner and more responsibl­y we work together on a realistic reform package, the easier and less painful the inevitable changes will be.

 ??  ?? Mark J. Warshawsky is a senior research fellow with the Mercatus Center at George Mason University. He was a member of the Social Security Advisory Board from 2006-12.
Mark J. Warshawsky is a senior research fellow with the Mercatus Center at George Mason University. He was a member of the Social Security Advisory Board from 2006-12.

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