IB98048
Social Security Reform
March 20, 2001
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Summary
Although the Social Security system is now running surpluses of income over outgo, its board of trustees projects that its trust funds would be depleted in 2038 and only 73% of its benefits would be payable then with incoming receipts. The trustees project that on average the system's cost would be 14% higher than its income over the next 75 years; by 2075 it would be 45% higher. The primary reason is demographic: the post-World War II baby boomers will begin retiring in less than a decade and life expectancy is rising. By 2025 the number of people age 65 and older is predicted to grow by 73%. In contrast, the number of workers supporting the system would grow by 13%. The trustees project that Social Security's surplus of taxes and interest will cause the system's trust funds, comprised exclusively of federal bonds, to grow to a peak of $6.5 trillion in 2024. The system's outgo thereafter would exceed its income and the trust funds would be drawn down until their depletion. However, the trustees project that the system's taxes by themselves would fall below its outgo in 2016. At that point, other federal receipts would be needed to help pay for benefits (by providing cash as the federal bonds held by the trust funds are redeemed). If there are no other surplus governmental receipts, policymakers would have three choices: raise taxes or other income, cut spending, or borrow the money. This adverse outlook is reflected in public opinion polls showing that fewer than 50% of respondents are confident that Social Security can meet its long-term commitments. There also is a growing perception that Social Security may not be as good a value in the future. These concerns and a belief that the nation must increase its national savings have led to proposals to revamp the system. Others suggest that the system's problems are not as serious as its critics claim. They argue that it is now running surpluses, that the public still likes it, and that there is risk in some of the new reform ideas. They contend that only modest changes are needed. Today, the ideas range from restoring solvency with minimal changes to scrapping the system entirely for something modeled after IRAs or 401(k)s. This broad spectrum was clearly reflected in the report of a 1997 Social Security Advisory Council. Three very different plans were presented, none of which received a majority's endorsement. Similar diversity is reflected in the many reform bills introduced in the 105th and 106th Congresses. In his last three years in office, former President Clinton also heightened the issue. He proposed using the Social Security portion of the looming budget surpluses to buy down the federal debt and crediting the system with the reductions - what effectively would be general fund infusions to the system. While little action was taken in the 106th Congress, Social Security continued on as a major issue in the 2000 Presidential campaign. President George W. Bush favored allowing workers to put some of their Social Security taxes in personal accounts where they could invest in stocks if they so desired. Then Vice President Al Gore supported using budget surpluses to shore up the trust funds. He also endorsed creating a different form of personal accounts, but not by using social security taxes. President Bush recently proposed creation of a commission to make recommendations by next fall to reform Social Security.
