The Congressional Budget Office, the agency charged with providing Congress with objective analyses of federal programs, released a new report today that shows the Social Security program is in good financial shape and will be for decades to come.
In fact, the CBO report says, “future Social Security beneficiaries will receive larger benefits in retirement…than current beneficiaries do, even after adjustments have been made for inflation.”
The report, which forecasts out 75 years, finds that while the accumulating surpluses in the trust fund will be exhausted in 2049, ongoing revenues will still be sufficient to fund about 81% of promised benefits at the end of the 75-year period (in 2082). The reason for this is that wages and Social Security revenues will continue to grow as the economy grows. The trust fund will cushion the large baby boom retirement, as it was designed to do, but most benefits will continue to be funded by direct transfers from workers to retirees, as they are now.
The fact that future retirees will receive higher benefits than current retirees, even if no changes are made to the program, is common knowledge among Social Security experts, but may come as a surprise to the average American, and even to many policy makers. This may be why the CBO, headed by respected economist Peter Orszag, decided to make that point in the first page of the new report.
The report is a timely counter to the alarmism being peddled by Pete Peterson, a billionaire investment banker and Secretary of Commerce under President Nixon. The Peterson Foundation has bankrolled a new movie, I.O.U.S.A., billed as “An Inconvenient Truth for the U.S. economy,” to sell the message that the country is on the brink of a financial meltdown.
In a 60 Minutes episode that preceded the film, Peterson Foundation President David Walker raised the specter of an entitlements crisis brought on by the boomer retirement: “When those boomers start retiring en masse, then that will be a tsunami of spending that could swamp our ship of state if we don’t get serious.”
Yet, according to the CBO projections, Social Security is in decent shape. Without any changes at all, the projected long-term Social Security shortfall equals a mere 1% of taxable payroll.
The big problem facing Social Security isn’t the boomer retirement—which was fully anticipated and is the reason there is a trust fund—but rather growing income inequality. Because the earnings of most workers have stagnated while those at the top have skyrocketed, the share of untaxed earnings above the taxable earnings cap (currently set at $102,000) has grown from 10% in 1983, when the system was last in balance, to around 17% today. So a better way to address the modest shortfall than an across-the-board tax increase would be to raise or eliminate the cap on taxable earnings.
Even more importantly, we need to fix our national health care system, which, as the Peterson Foundation points out, spends twice as much as other developed countries with no appreciable difference in outcomes or longevity. Controlling costs through comprehensive health care reform would not only close the projected Medicare and Medicaid gaps (which, unlike Social Security’s, are genuinely large), but would also give a boost to Social Security, because money spent on health benefits gets excluded from Social Security’s tax base.