IB98048
Social Security Reform
March 23, 2005
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Summary
On February 2, 2005, President Bush highlighted Social Security reform during the State of the Union address as a top priority during his second term. The President did not present a detailed plan for reform. Rather, he put forth guidelines for Congress to consider in the development of legislation to create personal accounts within a program in need of "wise and effective reform." The President also acknowledged that other changes would be needed to address the system's projected long-range funding shortfall. In recent years, reform ideas have ranged from relatively minor changes to the current pay-as-you-go social insurance system to a redesigned program based on personal savings and investments modeled after IRAs and 401(k)s. Currently, the Social Security system is generating surplus revenues. However, its board of trustees reports that, under its intermediate (or mid-range) projections, the trust funds would be depleted in 2041. At that point, an estimated 74% of benefits would be payable with incoming receipts. On average, over the next 75 years, the trustees project that the system's costs would be 14% higher than its income. By 2080, projected costs would be 43% higher than income. The primary reason is demographic: the post-World War II baby boomers will begin retiring in 2008 and life expectancy is projected to increase. Between 2005 and 2025, the number of people age 65 and older is projected to grow by 69%. In contrast, the number of workers supporting the system is projected to grow by 13%. The trustees project that surplus Social Security revenues plus interest will cause the trust funds, comprised of federal bonds, to peak at $6.0 trillion in 2026. Thereafter, the system's outgo is projected to exceed income, and the trust funds would be drawn down until depletion in 2041. However, the trustees project that the system's tax revenue would fall below outgo beginning in 2017. At that point, other federal receipts would be needed to help meet benefit costs (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 options: raise taxes or other income, reduce spending, or borrow the money. Public opinion polls that show fewer than 50% of respondents are confident that Social Security can meet its long-term commitments. In addition, there is growing public perception that Social Security may not be as good a value for future retirees. These concerns and a belief that the nation must increase its national savings (partly in response to the projected increase in the number of people age 65 and older) have led to proposals to redesign the system. Others suggest that the system's financial outlook is not a "crisis" in need of immediate action. Supporters of the current program structure point out that the system is now running surpluses, continues to have public support and could be adversely affected by the risk associated with some of the new reform ideas. They contend that only modest changes are needed to restore long-range solvency to the system. In the 109th Congress, Representatives Kolbe, Sam Johnson and Shaw and Senator Hagel have introduced reform proposals that would establish a system of personal accounts to supplement or replace part of the Social Security system (H.R. 440, H.R. 530, H.R. 750 and S. 540, respectively).
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Related Legislation:
- H.R.440
- H.R.530
- H.R.750
- S.540
