Save social security
Published: Tuesday, February 26, 2013
Updated: Tuesday, February 26, 2013 23:02
While the immediate economic consequences of Friday’s potential sequestration is making it all the more difficult for Davidson’s seniors to find work, it also threatens our entire generation by continuing to ignore the key drivers of the growing federal debt. In particular, exempt from the $85 billion across-the-board spending cuts is Social Security, which in its current state promises to burden our generation both by adding to the gross federal debt and failing to pay what we are promised when we retire.
Although Social Security has many functions, arguably it mainly serves to transfer income from the young and working to the old and retired. So those who are young pay into Social Security via the payroll tax with the promise of receiving an equivalent amount back (with cost of living adjustments) when retiring. This type of program is known as a pay-as-you-go model and it essentially forces people to save.
The problem? A pay-as-you-go model assumes a constant population growth rate, while in reality America’s is decreasing. This trend is stressing our Social Security program and in order for them to remain sustainable either taxes must increase or pension benefits must erode. According to CSIS’s Richard Jackson, America’s youth is shrinking and old is increasing simultaneously. The median fertility rate decreased from 3.45 in 1955 to 2.07 in 2010. In addition, life expectancy increased from 69 in 1955 to 77 in 2010 and is expected to be 83 by 2050. The United Nations expects that from 2010 to 2050, the average age in the United States will increase from 36.0 to 41.1, the elderly share of the population will increase from 13.3 percent to 21.2 percent, and the working-age share of the population will decrease from 59.8 percent to 53.8 percent.
The United States also faces an unusually rapidly aging population due to the baby boomer generation aging. Over the next twenty years the Census Bureau expects the population of people age 40 to 64 to only increase 6 percent while the population of people age 65 and older to increase a dramatic 79 percent.
These demographic trends will shock Social Security and simply screw over our generation. Despite the program showing an accounting surplus, the Congressional Budget Office, Congressional Research Service, and fact-checkers everywhere confirm that Social Security today adds to the gross federal debt and will continue to do so at higher and higher levels over the next several decades.
Since 2010, Social Security began to receive less tax revenue than it paid out in program benefits. The only reason that it can still provide its promised pensions is that for more than 20 years prior to 2010, the program had excess revenues that it invested in $2.7 trillion worth of special Treasury securities. The interest Social Security receives on those assets actually gives it an accounting surplus. Over the years, however, the Treasury did not simply keep that money and spent it in other ways. Thus, the Treasury must borrow from the public when Social Security uses interest payments or Treasury assets to make up for the tax revenue shortfall, which directly increases federal debt levels.
In 2012, the tax revenue deficit for Social Security’s Old-Age and Survivors and Disability Insurance (OASDI) programs was about $165 billion. Despite the recent 2 percentage-point increase in the payroll tax, Social Security remains on an unsustainable path. The Congressional Budget Office projects that over the next 10 years, OASDI’s tax revenue deficits will add $1.3 trillion to gross federal debt and we students will be burdened by slower economic growth and potential austerity.
Worse, we will not even be able to benefit from Social Security. By 2021, the Social Security Administration expects its tax revenue shortfall to exceed its annual interest income and the program will have to start drawing from its accumulated Treasury assets. With our unusually rapidly aging population it will only take until 2033 for Social Security to exhaust its trust fund assets.
If policymakers let those assets completely deplete, in 2033 Social Security will no longer have legal authority to pay its promised benefits and the program will only have enough tax revenue to cover 75 percent of the program’s pensions. As a result, our generation currently pays into Social Security without the promise of receiving an equivalent pension when we retire. Now that pisses me off.
By distracting themselves with the sequester and continuing to avoid the fundamental problems like Social Security’s unsustainability, policymakers are directly increasing the burden we will have to correct their mistakes. It’s time to be angry and vocal, Davidson. We can’t let our leaders continue to sacrifice our future in such reckless ways.