The Real Problem With Social Security II
adaniller posted some thoughtful comments in response to my November 20 article on Social Security. He argues that while the program's shortfall may be worrisome in the long-run, there is no compelling reason to fix it now. Rather, we should wait, carefully consider the problem, and weigh potential solutions.
Here's why I disagree:
- Social Security is not a cliff. It is not as if we will continue to receive benefits until some date in the future when we won't. In reality, with no changes to the system, we will borrow more and more money each year to pay what we owe. The political system may prefer crises with dramatic, film-at-11 consequences, but while the Social Security problem is more insidious, it is not any less serious. Think glaciers and global warming.
- After decades of studies and commissions, we know how to fix Social Security. We can increase taxes, slow the growth of benefits (by raising the retirement age, for instance), boost returns on retirement investments, or combine these. Any choice will be easier today than tomorrow. We can stall, but there are no magic bullets waiting to be discovered.
- For example, the benefit of increasing payroll taxes will decline as time goes by. Today, for every retiree there are three workers to pay those higher taxes. In less than three decades, there will be only two. That will mean unacceptably steep tax hikes for those relatively few who are on the job.
- Hammering people with a large immediate increase in the retirement age or a sharp cut in their benefit formula is also both politically untenable and bad policy. It makes much more sense to phase in changes, as we are doing now with the gradual increase in the retirement age from 65 to 67. The more lead time you have, the less painful it will be and the more time people will have to adjust to the new world.
- It works the same way with boosting investment returns. Whether we choose private accounts to supplement benefits or replace them, it will take decades for those funds to build up enough to matter.
- Finally, there is more than economics at work here. There is a profound moral question. Do we want all the burden of change to fall on our children and grandchildren, or should today’s Baby Boomers accept some of the cost. The longer we wait, the more we will shift these financial obligations to future generations. Are politicians really suckers for talking about this? I hope not.