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220 Jewett Blvd,
PO Box 218, White Salmon, WA 98672
Phone: 509.493.2112 |
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| Guest Commentary |
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| Social Security: Increase revenue and/or cut benefits |
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By Roger Gadway
Much has been written recently about the future of Social Security. Any decision to change the system will affect Americans for several generations. It is important for the American people to understand and support the decisions that are made.
Today's workers finance Social Security. They pay today's cost of retirement, disability, and family survivor benefits.
Today's workers are paying more than the cost of the benefits enjoyed by today's retirees and disabled. The surplus goes into the Social Security Trust Fund. The purpose of the fund is o help pay for the huge cost increase waiting to happen as the baby boom generation retires. When Social Security starts paying out more than it takes in, about 2017, the trust fund will pay the difference.
If the way benefits are paid and revenue is collected do not change, the trust fund will run out of money in about 2042 according to the Social Security Administration or 2052 according to the Congressional Budget Office. Once the trust fund is gone, benefits could be paid at about 75% of the promised level.
We cannot change these facts. We can change the system. If we don't want to default on promised benefits we must either increase revenue, cut promised benefits, or both. Let's look at ways this can be done.
Increase revenue: We could increase the withholding rate paid by workers and employers, or, we can apply the tax to incomes higher than the current $90,000 level. Applying the Social Security tax to incomes up to $140,000 would eliminate about half of the shortfall in the trust fund.
For some reason no one is talking about the most attractive way to increase revenue. Currently the entire surplus in the trust fund is invested in government bonds. These bonds are backed by the full faith and credit of the United States government, but they are not a good investment. Here's why:
1) The trust fund is not getting the benefit of a higher return that could be gained from a diversified portfolio. A diversified portfolio containing domestic and foreign stocks as well as different types of bonds will produce better returns than investing solely in government bonds. With billions of dollars to spread over different classes of investment and a time horizon of decades, the risk is almost non-existent. Many state retirement systems, such as Washington and California, use this approach effectively to finance their retirement systems.
2) Putting all of the trust fund into government bonds means that the taxpayers will have to redeem those bonds when the money is needed. Not a problem when we were running a budget surplus and paying down our debt. We could borrow money to redeem the bonds. Now that we are running big deficits again, it will only add to that deficit if we borrow to redeem Social Security's bonds.
Redeeming the bonds, however, is not a problem with the Social Security system, as some would like us to believe. It is a problem with the management of the economy. It needs to be fixed by cutting deficits, not by cutting Social Security.
Cut benefits: We can keep faith with workers retiring after 2042 by cutting benefits to those retiring before that date. This could be done in various ways. The ones talked about most are 1) increasing the age of retirement, or 2) reducing the cost of living adjustment.
Increasing the age of retirement has some merit. The age is being slowly increased now. It will drift up to 67. As life expectancy increases, a continuing gradual increase may be reasonable .
Anyone who receives Social Security will tell you that the cost of living increase goes to pay for those who rely on Social Security for all or most of their income.
That's really all there is to it. We can raise income and/or cut benefits. If we do it now it will be a small adjustment.
Roger Gadway is director of Klickitat County Senior Services.
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