Social Security provides vital financial support for nearly 53 million seniors. Social Security also provides critical benefits to widows and those with disabilities. Unfortunately, Social Security faces a $5.4 trillion deficit over the next 75 years (an amount equal to over one-third the size of the entire U.S. economy). As Chairman of the House Budget Committee, one of my top priorities is to preserve the Social Security safety net and make sure the program remains solvent for future generations.
Social Security Cost-of-Living Adjustment for 2011
On October 15, 2010, the Social Security Administration announced that there will be no automatic Social Security Cost-of-Living-Adjustment (COLA) increase for 58 million Americans in 2011. The Social Security Act provides that the COLA will increase automatically each year, provided that there is an increase in inflation, as measured by the Consumer Price Index (CPI). However, since there was no increase in inflation from the third quarter of 2008 to the third quarter of 2010, there will be no COLA increase in 2011. Furthermore, there will be no change in the maximum amount of earnings subject to Social Security taxes in 2011.
Social Security is Going Broke
Social Security is funded by the payroll taxes of current workers to pay the benefits of current retirees. Projected long run program costs are not sustainable under current program parameters. Social Security's annual surpluses of tax income over expenditures are expected to fall sharply this year and to stay about constant in 2011 because of the economic recession. They are expected to rise only briefly before declining and turning to permanent cash deficits beginning in 2015 that grow as the "Baby Boom" generation retires.
In addition, this surplus is a product of an intergovernmental transfer system. The Social Security surplus is given to the Treasury Department and replaced with IOUs. This intergovernmental transfer is different form normal government debt as we think of it, because when an individual buys a government bond, he or she has a financial claim against the government. When the government issues itself an IOU to one of its own accounts, it has not purchased anything or established a claim against another institution or person.
However, the main reason for the looming financial crunch is that our society is aging. The "Baby Boom" generation has already started to collect their Social Security retirement benefits. As a result, there are fewer workers to support each retiree than when Social Security was created. Increasing life expectancy and the approaching retirement of more Baby Boomers continues to put increasing pressure on Social Security each year. Over the next several years, the number of retirees is expected to grow more rapidly than the number of individuals whose taxes will pay for future benefits. Because of this, the number of workers supporting each Social Security recipient is projected to fall from 3.3 today to 2.2 in 2041. When comparing these figures with those from 1950 (when there were 16 workers for every 1 recipient), the changes in the program become clear.
The Need for Reform
Indeed, according the 2010 Social Security Trustees Report, beneficiaries will face a painful 22% across-the-board benefit cut in 2037 when the Social Security Trust fund is exhausted. Even those who are currently on Social Security -- those now 62 and older -- may experience indiscriminate cuts in benefits at a time when they are increasingly reliant on the program. In order to avert these painful benefit cuts, I recently reintroduced my plan, A Roadmap for America's Future, which offers modest, sensible reforms to Social Security going forward so this program can fulfill its mission for future generations, while making no changes in benefits for those over 55.
H.R. 4529, A Roadmap for America's Future
I first introduced the Roadmap in 2008 to address the greatest threat to our economic and fiscal future--the massive debt burden being driven by the unsustainable growth in entitlement spending. At the time, I argued that years of reckless spending, by both Democratic and Republican Administrations, had America on a perilous path. One in which Americans' health and retirement security programs would soon collapse; future generations would be crushed under a burden of debt and taxes; and our economy would become unable to compete with the rest of the world. Since then, our country has undergone a dramatic financial and economic crisis, unemployment has doubled, and unfortunately, our day of fiscal reckoning has drawn rapidly closer.
At the outset, it is important to note that the Roadmap makes no changes to Social Security for individuals 55 and older. Individuals 55 and older will remain in the current system and will not be affected by this proposal in any way. They will receive the benefits they have been promised, and have planned for, during their working years. What the Roadmap does with respect to Social Security is preserve the benefits that those at or near retirement have planned their lives around, while also guaranteeing that these benefits are there for future generations.
As currently structured, Social Security will not be able to fulfill its promises to future retirees. Without reform these individuals will face substantial cuts in benefits in the coming decades. The Roadmap assures the solvency of our existing Social Security system by providing workers with the voluntary option of investing a portion of their FICA payroll taxes into personal savings accounts. Individuals under 55, if they want to, are able to choose whether to stay in the current system or begin contributing to personal accounts.
Under the Roadmap, those who choose the personal account option will have the opportunity to begin investing a portion of their payroll taxes into a series of funds managed by the U.S. government. The system would closely resemble the investment options available to Members of Congress and Federal employees through the Thrift Savings Plan. Individuals who choose to invest in personal accounts will be ensured that every dollar they place into an account will be guaranteed, even after inflation. With the recent market downturn, individuals must be assured their retirement is secure. By guaranteeing the dollars put into an account, individuals can be assured that a large-scale market downturn will not cost them their Social Security personal accounts.
Again, this plan recognizes the obligation to preserve the existing Social Security Program for those who already are retired, and for those near retirement who have planned on its benefits for most of their working lives. Therefore, persons now retired and receiving Social Security benefits, and those currently 55 and older, will remain in the existing system and will receive their promised benefits. In fact, their benefits will be more secure because the transformation of the program, along with other reforms in this proposal, ensures the Federal Government will be able to pay promised benefits. Ultimately, restructuring Social Security for future retirees will allow market forces to strengthen its financial underpinnings, making it sustainable for the long run. These common sense ideas have received bipartisan support over the years, and would allow Social Security to deliver on its promises to others.
The problems facing the future of Social Security are real, and the numbers do not lie. We cannot demonize those who offer alternative solutions if we seriously intend to tackle the inevitable solvency of Social Security. Ultimately, we cannot kick the can down the road and let another generation of retirees struggle because Congress failed to act. By addressing these issues now, we can ensure that each individual is given the resources to save for their future in a manor which they see fit. This fiscal crisis is not a Democratic problem or a Republican problem. It is an American problem, and it cannot be solved exclusively using the political ideology of either party. We need to build bipartisan support for actual solutions. Not everyone will agree with every aspect of my proposal, and that's fine - but I hope this will spur others to offer their solutions. I welcome the long overdue debate on how we will leave the next generation with a better America.
I am hopeful that Congress will address the issue of Social Security reform and have a serious discussion on the problems associated with our entitlement programs. If you would like to learn more about the specific reforms proposed by the Roadmap for America's Future, I would encourage you to visit: www.americanroadmap.org