Social Security’s Future - More taxes or less in benefits?
by Robert Parker
Greenspan speaks his mindChairman of the Federal Reserve Board Alan Greenspan touched off a firestorm recently when he told Congress that Social Security simply can't afford to continue benefits at current levels for much longer. He recommended trimming benefits promised to future retirees, while making recently reduced tax rates permanent in order to keep the economy strong and growing. He also recommended switching from a COLA (cost of living adjustment) system for annually raising benefits, currently linked to the Consumer Price Index, to a different system that would give lower inflation estimates. And he recommended raising the age at which full benefits become available to retirees.
Roll back tax cuts or eliminate borrowing?There was nothing in Greenspan's comments which hadn't been voiced by different parties many times in recent years. However, both Democrats and Republicans, mindful of election year politics, immediately rejected the recommendations, some even calling for Greenspan's resignation. Some Democrats see the salvation of Social Security in rolling back the Bush administration's tax cuts. Republicans want to solve it by reducing expenditures in the national budget. They argue that balancing the budget and reducing current and future national debt levels will eliminate "borrowing" from Social Security, a current practice of the U.S. Treasury help finance the country's budget.
The numbersSimply put, even the government acknowledges that Social Security "… is not sustainable over the long term at present benefit and tax rates without large infusions of additional revenue. There will be a massive and growing shortfall over the 75-year period. Social Security's Chief Actuary projects that in present-value dollars the total net Social Security cash flow for years 2003 through 2077 is projected to be nearly -$4.9 trillion. When the trust fund balances of $1.4 trillion at the beginning of 2003 are added to this value, we get a financial shortfall (or unfunded obligation) for the 75-year period of $3.5 trillion. This unfunded obligation indicates that if an additional $3.5 trillion had been added to the trust fund at the beginning of 2003, the program would have had adequate financing to meet the projected cost of benefits scheduled in current law over the next 75 years."
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