By Representative Mike Doyle (PA)
Social Security is a hot topic in Congress these days, and with good reason. The Baby Boom generation is reaching retirement age, and that demographic change will affect most aspects of American society.
Once all of the Baby Boomers have retired, there will be twice as many Social Security and Medicare recipients as there are today, and senior citizens will make up a larger share of the population. Combined with the fact that Baby Boomers will live longer than previous generations, this change will present a serious challenge to the Social Security system.
At some point over the next 10 to 20 years, the Social Security Trust Fund will begin paying out more money in benefits than it is taking in as payroll taxes. At some point roughly 40 years from now, the surplus in the Social Security Trust Fund is expected to run out, and - if nothing is done - Social Security will only be able to pay out about 75 percent of the benefits that are currently scheduled.
That sounds pretty serious - and it is - but there is a great deal of misunderstanding about what it would actually mean for future beneficiaries and how that would compare to benefits under the plan that President Bush has offered for Social Security "reform."
When most people hear that Social Security benefits might be cut, they assume that Social Security benefits after those cuts would have less purchasing power than those benefits today. That's simply incorrect.
Let compare for example, an individual born in 1940 and earning the median income over the course of his or her career who retires this year at age 65 would receive Social Security benefits of roughly $15,000 a year. Under existing law, an individual born in 2000, earning the median income over the course of his or her career, and retiring in the year 2065 is currently scheduled to receive annual Social Security benefits with the purchasing power of $26,400 today. If no changes are made to the program, the Trust Fund will be able to pay that beneficiary with the purchasing power of about $20,000 a year. Even after a 25 percent cut, future beneficiaries' benefits would still be substantially higher in inflation-adjusted terms than those of Social Security beneficiaries today.
Under the President's plan, however, future retirees would actually be worse off. President Bush has proposed that we cut Social Security benefits for future retirees substantially and allow each worker to invest up to a third of his or her Social Security payroll taxes in a private investment account.
Under this plan, the individual described above would receive benefits with the purchasing power of about $13,000 a year today when retired at age 65 in 2065 - even with the income from a private retirement account. That's roughly $7,000 or 35 percent less than if no changes at all are made in Social Security - and that's for successful investors. Most retirees would get even less under the President's plan. Once the President's plan is fully phased in, most if not all retirees' Social Security benefits would have less purchasing power than those benefits today - even when compared to the amount the Social Security system would be able to pay if we do nothing.
Most of us would be unaffected by the President's plan, but our children and grandchildren would suffer extraordinarily under it. In fact, they would be much worse off than if nothing were done to improve Social Security's finances. Ironically, some modest incremental changes in the program could eliminate the need for any major benefit cuts in this vital program. The upcoming debate will determine which approach our nation will take. I will be working to oppose the President's Social Security plan and to push for less radical changes that preserve Social Security in its current form.
June 2005
This opinion piece does not necessarily reflect all the views of TSCL.
