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The raging Social Security debate

From The Wall Street Journal:

What's the matter with Social Security?

The fundamental problem is demographic. In 1960, there were five workers for every Social Security beneficiary. Today there are slightly more than three. In 30 years, there will be only two. That means fewer tax-paying workers to support more benefit-receiving retirees.

If tax rates and benefits remain as they are under current law, the system will begin paying out more in benefits than it collects in taxes around 2018, according to Social Security actuaries.

What is the Social Security trust fund?

The trust fund is an accounting device, but one with enormous political significance. Franklin D. Roosevelt wanted a program that workers would see not as a welfare program, but as one into which they made contributions and got old-age pensions. "If I have anything to say about it," he once said, "it will always be contributed, both on the part of the employer and the employee, on a sound actuarial basis. It means no money out of the Treasury." The creation of a Social Security trust fund in 1939 to serve as a holding pen for worker contributions solidified this notion.

Social Security revenues began to exceed benefits after 1983 when President Reagan and Congress, accepting recommendations by a panel headed up by Alan Greenspan, then a private economist, increased payroll taxes, reduced benefits and began a gradual increase (to age 67) in the age at which workers are eligible for full benefits. This altered Social Security from a pay-as-you-go system into one that partially prefunds benefits. Last year, Social Security collected $151.1 billion more in taxes and interest than it paid out.

The growing Social Security trust fund, now about $1.5 trillion, is invested in interest-paying U.S. Treasury securities, or, essentially, lent to the rest of the government. This sometimes leads to charges that Congress is "spending" Social Security funds. But there isn't any safer investment.

So how do you fix the problem? Since there will be less workers paying into the program, and more retirees drawing from the funds, you can raise taxes to cover the difference. The committee appointed by President Bush suggests ‘personal accounts’ to give individuals more ownership over their money, without feeling like the government is taken it from them. Here’s how a private account would work:

1: Worker diverts up to 4% of wages into private account, with a $1,000 limit that rises each year.

2: Worker puts money in stock or bond mutual funds.

3: At retirement, government reduces traditional Social Security monthly benefit to reflect taxes diverted to private accounts. Here's how:

• Add up contributions to private account and what they'd earn if invested at 3% on top of inflation

• Estimate what that total would provide monthly if paid over retiree's life

• Subtract that sum from monthly government benefit

4: A retiree comes out ahead if personal account earns more than 3% on top of inflation. Retiree is worse off if returns are less than that.

5: Worker can use private account at retirement to spend, save or bequeath.

Note: Mr. Bush proposes additional across-the-board reductions in Social Security benefits from those promised in current law, but hasn't spelled out details.

Source: White House

"Private accounts are a good idea. Most Americans save too little. Social Security was never intended to be all of anyone's retirement income: Everyone was supposed to have private pensions and personal savings as well. But private accounts funded by cutting Social Security contributions are a bad idea." - Brad DeLong, an economist at the University of California at Berkeley.

I like the idea of letting us keep part of what we would have contributed into the social security fund, and invest it in safe, moderated investments. Smart investing in your own personal account could mean you receive more as a social security supplement to your retirement savings. If they decide not to go with personal retirement savings accounts, has the government lost all faith in the American people that they can handle their finances on their own? What do you guys think? Do you think personal accounts are a good idea? How should the government fund them, if not to cut some of the contributions to the current system? What other options are being introduced, and by whom?

Is your WSJ quote coming from

Is your WSJ quote coming from the print edition?

I'm not yet ready to comment on your story, but I'd like to get the quote cited property since it's posted as an actual story.

Brad: Very Good Post

This is one of the best posts I have ever seen on ProvoPulse. It is both informative and well constructed. Wading through the facts and figures behind tough, sometimes dull issues, can be hard work, but we need to do it. Nicely done!

I don't claim to have all the answers on this issue, but I personally find it difficult to be enthusiastic about the private accounts idea simply because it does not solve the insolvency problem - in fact, it worsens it quite significantly by reducing social security revenue and adding overhead costs.

A more appealing proposal to me is the idea of eliminating or raising the current cap on individual social security taxes for higher-income Americans. Although that solution is also not without its downside.

Its a tough problem.

On a (relatively) positive note, I tend to disagree with those who think this is a major "crisis". Although 2018 is projected as the year when more goes out then comes in, I believe 2042 or 2053 is the projected date when we will actually be effected - meaning the surplus is gone and benefits will actually have to be reduced. In the big picture, I think the Federal Deficit, the Trade Deficit, and the Personal Debt balloon are going to hit us a lot worse and a lot sooner than Social Security insolvency.

(That was a "positive note"?!) [laughing at what I just wrote]

Some thoughts

My first big gripe with all the discussion on Social Security reform/privatization/destruction/salvation is that the people who will decide on it (politicians), really aren't the people most dependant on Social Security. Whether or not it succeeds, John Kerry or George Bush aren't going to be waiting for their checks each month to buy their medication.

I'm also wondering if there is an end-all solution to "save" Social Security once and for all. Does that mean that if implemented, will Americans and politicians never have to worry about Social Security again? The President claims that it will save it once and for all.

From several sources I've read (Newsweek, Time, US News and World Report,, they say the problem isn't as bad as pro-reform people claim it is nor is the problem as small as anti-reform people claim. So it's tough to get an accurate account on the entire situation.

But one idea that I would like to see implemented is this. If the personal accounts are going to be voluntary, I think that they should make participating in Social Security voluntary. One of the reasons for personal accounts is that they claim Americans can invest their money better. So why not let us Americans invest it, and reap the benefits when we want to?

I'm not really against reform/privatization, but I'm not really for it either. Especially because there are still some unknown factors. President Bush is talking about it a lot but he's not saying much, and the Democrats don't seem to be offering much to counter it other than saying Bush is trying to destroy it.


Overstating & Understating the Social Security problem

My resources for overstating and understating the Social security situation is:

I like, especially because it's been endorsed by both Liberals (Radio host Randi Rhodes) and Conservatives (Vice President Dick Cheney). It has the most fair-and-balanced review of politics that I have come across. If anyone has other good resources (like NPR), I would love to know them as well.


another thought....

C-span has a few good links regarding this issue, including proposed plans (two at the forefront so far) from Michael Tanner of the Cato Institute, and Peter Orszag of the Brookings Institution. Both of which suggest the Private Account Option.

Democrats largely disagree with the privatized account option. They say it does nothing to patch the solvency problem - it only shifts the debt around, whereas Republican's believe that by tapping into the market, you can potentially (most likely) receive a much greater rate of return on your investment (turn it into an actual investment, rather than a pay-now-then-get-paid-back-later plan). In fact, due to inflation, the actual current rate of return is negative, whereas with private accounts modestly invested, you could expect returns at or above 4% (The Heritage Foundation: Social Security Calculator)

I recently watched two separate speeches by Steve Forbes and newly-elected Senator Barack Obama (D-Illinois) on this issue as well. Of course Steve Forbes was totally in favor of the private accounts. It was a while back that I saw him speak, so I don't remember many specifics.

Barack Obama spoke at the National Press Club, and I saw why many people consider him the up-and-coming future of the Democratic party - he's very articulate. (I wish I could find the transcript and paste it here) But I didn't agree with him on his main points of argument against the privatization idea. He fails to recognize that Social Security was developed as a supplemental retirement program - it was never and isn't its purpose to provide a full income to support the lifestyle of a typical American throughout their retirement - only as a sort of insurance to help protect them and supplement their own workers pensions and retirement savings. I agree with him that Americans need a sense of personal responsibility, but he still believes in more of a socialist (though he adamently refuses to call it socialism) system of taking care of each individual. He calls America a big 'community' and 'family' that should look after each other. I agree with him strongly, however when it reaches the point where you start pooling everyone's money together with the government acting as the executor of it all - that's communism and/or socialism, and I don't agree with it. He also made the point that social security fails to finance the retirement of many individuals because they have to choose to either purchase their prescriptions or buy food - due to outrageous inflation in the healthcare industry. I agree with him once again - but when he asked what we would tell those faced with that choice in the future - I wonder what we tell those people faced with that choice now. The fact is, social security isn't and will never be a full retirement/pension program. It was only designed as a supplement.

During a question/answer session between several senators and Michael Tanner/Peter Orszag and a few economists regarding the current ideas/plans on the forefront of the social security debate - the point was brought up that a growing percentage of social security benefits are being paid out to the disabled, and not to retirees - and the suggestion was made that that particular aspect of the plan should be handled separately under its own government program. There's no question that these individuals need to be taken care of, when they can no longer take care of themselves, and it's not a bad idea to separate the two forms of social security.

Finally, though, with social security, in the end you're still going to need to raise taxes and/or cut benefits in order to compensate for the change in the workforce throughout the coming years. Republicans call it a 'crisis',while Democrats say they're manufacturing a crisis for political gain. Democrats admit there is a problem, and will even refer to it as a 'serious problem', but downplay it as significantly less than a crisis. Whatever semantics games you play with it, it doesn't matter - there is a problem that would be better addressed now than in the future. Optional personal accounts would at least provide an opportunity to retain the current tax levels, and provide opportunity for higher returns. In the end I think those that are willing to take on the extra (though minimized) risk, should be given the privilege of determining where their money goes.

WSJ quote

I got it from They have a section on Social Security.

social security

If everyone planned for their own retirement, then we wouldn't need social security. Unfortunately, there are people who either aren't in a position to save any money because they're living from paycheck to paycheck as it is by no fault of their own, or there are those also for whom it is too late to save for their retirement. Also, social security isn't just for retirees. It also supports the disabled that are unable to effectively earn money on their own. So I don't think that making social security voluntary would solve any problem, because those that have the money and are able would opt out, and those that need it would be left to pay for what they couldn't afford in the first place.

I'm very much in favor of private accounts because it gives people control over their own money, or at least more of it. I don't think the problem is being over-exaggerated too much. Granted, the government can always make good on its liabilities one way or another, but if we plan ahead and act as soon as possible we can avoid the potentially stupid mistakes politicians would inevitably make under the pressure of a time crunch.

I also agree with you in that I don't like it how the politicians 'fixing' the problem are those that are coming up on retirement age as is, and don't feel the urgency that they would if it were to affect them more directly. But that's the importance of informing the younger generation and having them make the decisions through their elected officials. I think sometimes we forget that politicians are there to serve our interests, and not their own interests. Part of the reason we forget that is because we don't voice our interests, so they go off what they think our interests are, or whatever the interests are of those that are voicing it (either vocally or monetarily).

so I think the best thing to do is to plan for your future without being dependent on the government, but then being politically active as if you were dependent on it.

projection of the problem

I believe 2042 or 2053 is the projected date when we will actually be effected - meaning the surplus is gone and benefits will actually have to be reduced.

where did you come up with those numbers? I mean professional economists came up with the 2018 number, I highly doubt you are as qualified as they. Neither am I, so I will take their word for it.

If the personal accounts are

If the personal accounts are going to be voluntary, I think that they should make participating in Social Security voluntary. One of the reasons for personal accounts is that they claim Americans can invest their money better. So why not let us Americans invest it, and reap the benefits when we want to?

I like that idea, but from what I understand the government atcs much like a bank. They take the money we give them from social security and invest and spend it in other areas. They dont have an account called 'social security' that just sits there. The are constanly spending and investing in other areas with that money, but always leaving enough to pay back. I think the reason alot of politicians dont want reform is because they dont want to have that source of money pulled from them. So, what we need to do is do a better job of spending our government money. And its not just the president who decides that. Congress descides where every sent is spent. They need to fix the problem.

If social security were voluntary no one would participate. They would just see it as another oppertunity to get more money into their pockets. I believe that some need incentive to save. I like the idea of private accounts. Whether or not the government does private accounts I will be investing in one because of the higher return. As much as I hate to see the government step in our financial lives, some need the guidence of some sort of program but are to stubborn to admit it. Although I would like a voluntary social security program, there needs to be some sort of guidlines to help those who wont help themselves. Those are just some of my thoughts.

Like brad said, I dont think the government it exagerating the problem, I think we are failing to see it. Or we dont want to see it. Hopefully our current system will be fixed so my money that I have paid into the system wont be lost.

re: projection of the problem

The year 2018 is the year in which there is projected to be negative revenues for social security, and around 2041 is when they expect the trust fund to reach zero. Right now the government takes in much more than it pays out, but that will slowly swing the other way, and eventually it will be drawing money from that savings as more people retire, people live longer, etc.

For more information on these questions especially, check out the frequently asked questions at, or their general web address:

questions answered.....

Taken from the government's website:

Q. I hear that Social Security has a big financial problem? Why?

A. Social Security's financing problems are long term and will not affect today's retirees and near-retirees, but they are very large and serious. People are living longer, the first baby boomers are nearing retirement, and the birth rate is low. The result is that the worker-to-beneficiary ratio has fallen from 16.5-to-1 in 1950 to 3.3-to-1 today. Within 40 years it will be 2-to-1. At this ratio there will not be enough workers to pay scheduled benefits at current tax rates.

Q. What will happen if Social Security is not changed?

A. If Social Security is not changed, payroll taxes will have to be increased, the benefits of today's younger workers will have to be cut, or massive transfers from general revenues will be required. Social Security's Trustees state, "If no action were taken until the combined trust funds become exhausted in 2041, much larger changes would be required. For example, payroll taxes could be raised to finance scheduled benefits fully in every year starting in 2041. In this case, the payroll tax would be increased to 16.66 percent at the point of trust fund exhaustion in 2041 and continue rising to 18.10 percent in 2079. Similarly, benefits could be reduced to the level that is payable with scheduled tax rates in every year beginning in 2041. Under this scenario, benefits would be reduced 26 percent at the point of trust fund exhaustion in 2041, with reductions reaching 32 percent in 2079.” See the 2005 Trustees Report.

Q. What are the alternatives for modernization and reform?

A. The four basic alternatives that are being discussed -- singularly or in combination with each other -- are (1) increasing payroll taxes, (2) decreasing benefits, (3) using general revenues or (4) prefunding future benefits through either personal savings accounts or direct investments of the trust funds.

"If everyone planned for thei

"If everyone planned for their own retirement, then we wouldn't need social security."

If your premise wasn't so flawed, perhaps the rest of your argument wouldn't be as faulty. Social Security provides more than mere retirement funds. I don't have the time to give you all the research, so I would just suggest that you actually look into things before making such claims.

Do people not recognize the contradiction in the notion of a privatized social security? This desire to privatize what was once social is indicative of the self-ish attitude America has embraced. Furtherproof that we are more like the wicked nephites of the book of mormon. Me me me me me. That's all we ever care about. We are the only industrialized nation with out a national socialized health care and now we want to screw over the elderly, disabled, and sick even more. Shame, shame, shame on us.

It's true that social securit

It's true that social security provides more than just retirement benefits - a fact I overlooked in making that statement, you're right. It does also provide benefits to disabled workers, which I addressed in another post, making reference to a comment a senator made that perhaps that aspect of the program should be spun off into its own program.

The reason I am in favor of privatized accounts, as well as not socializing healthcare - is because programs run much more efficiently when not left to the government to decide everything. America has some of the best medical facilities in the world, some of the best doctors, as well as some of the shortest waiting lists for major procedures. There are many people who are without healthcare, largely due to huge inflation across that industry - which I think is out of control, but those with access to healthcare have access to the best healthcare in the world, in my opinion. There really needs to be something done about health care costs, especially in pharmaceuticals, where the mark-up on drugs can be 2000% sometimes. Now, when you make healthcare free to everyone, then the quality of doctors declines, the overall price of everything rises dramatically - common sense home treatment is replaced by frequent visits to the doctor, everyone takes medicine for every little ailment, besides the fact that for major procedures - surgeries, transplants, specialization, etc. - the waiting lists get so long that no one gets the help they need when they need it. So you can leave it to the markets, with some limited government regulation, and provide the best healthcare to most of the population, or you can socialize it and provide poor healthcare to everyone. PJ Rourke best summarized this when he noted, “If you think health care is expensive now, wait until you see what it costs when it's free.”

I'm not sure what your point was with the social security aspect of your post - you're obviously against privatized accounts - but you made it seem like you were against them because you wanted to still make sure that the elderly, sick, and disabled would be taken care of. I agree with you, that we need to make sure those groups are always taken care of, but privatizing accounts does not take that away from them - it only bolsters the returns of those that opt in to the privatized accounts (no more than half of what they would pay into the system now would be diverted into private accounts, remember - and the private accounts would be optional, so the vast majority of social security money would still be flowing into the trust fund) I don't see anything wrong with providing the option of possibly higher returns to those that are willing to take on the extra risk, while still taking care of the elderly and disabled.

Social Security - Crisis?

I guess I'm still waiting to hear a compelling argument that Social Security insolvency is an urgent crisis. Since we won't actually be affected until 2041 (even later if we believe the OMB numbers), it just doesn't seem that urgent. I'm not saying we should ignore it, but perhaps we don't need to completely re-structure it either.

On the other hand the Federal Deficit and Medicare funding are already catastrophic problems right now and will only get worse. Can't we somehow get Congress or the President to take a stab at cutting spending?

good thoughts - I don't know

good thoughts - I don't know much about the deficit problem or medicare. Other problems include general healthcare, the trade deficit, the energy problem, etc.

I think the common consensus among Republicans and Democrats alike is that the social security problem is a 'serious problem', and that the sooner you solve it, the easier it will be to be solved - that's why they're trying to tackle it now rather than in 2040 right before the well runs dry.

One way to fix Social Security

[Rhydogg, don't click this link. It will only make you angry.] ;)

You're certainly right that the sooner it is addressed, the better. I am still undecided on the private account idea, but it may grow on me as time goes by. We'll see.

great link, LaurenceB. I thi

great link, LaurenceB. I think that is a perfect example of one of the problems with illegal immigrants. No matter how you look at it - it is wrong for someone to pay into a system throughout their life and not receive any of the benefits from it. That's the unfortunate position that many illegals are faced with. To get a job once they have come into the country illegally, they need to get enough fake identification (also illegal)to get a job. Immigrants from any country need to come to this country through legal means - for their own benefit. Of course it's wrong that workers don't receive the benefits they have helped pay for, but if they're here living and working illegally, they don't have any feet to stand on to combat it. If they want the benefits they need to go through the legal channels of getting a job, just like all of us need to, right?
The US government has the difficult responsibility of creating policy that 1) makes it easy enough for people to come into this country, so it reduces the incentive to enter illegally. This would benefit them, because they could record and track everyone that comes into the country, and receive tax revenue from all workers. and 2) makes it difficult enough to come into this country that they are able to protect their national security as well as their economy. It's a tough position.
(I refer to illegal immigrants as 'illegals' only as an abbreviation, because I get lazy in typing)

Did you listen to the President's press conference yesterday? He said another example where the current social security system is unfair is when a working spouse dies. If, for example, both parents work, and one of them dies in their thirties or forties, having contributed to the social security system throughout their working career, when the surviving spouse retires they have the option of either taking the benefits they would receive, or the benefits their spouse would have received - not both. So the money payed into the system is just lost in the system. With voluntary (emphasis on voluntary) personal accounts, some of this money could have been diverted into a personal account, over which they have control. This would be an asset that they could leave for their spouse, children, etc, and not be lost in the system.