Reality About Social Security
- The future of the Social Security program is probably one
of the most important challenges that will confront our nation
over the next century. Some claim that those who say Social
Security requires an immediate fix are just crying wolf, and
that any problems can be solved with minor adjustments over
time. But they’re choosing to ignore that Social Security
has long existed in a land of myth, with figures and misinformation
used to serve political agendas. Ignoring fiscal reality,
however, is hardly the way to make major public policy decisions
that affect every American. The country’s shifting demographic
trends mean that, without reform, the current program simply
won’t be adequate to sustain future generations.
Beyond Emotional Issues
AICPA recently updated its seminal analysis of Social Security,
first issued in 1998. You can access this study via our
website, www.nysscpa.org. CPAs have a special responsibility
to educate citizens about fiscal realities, and I encourage
you to read the AICPA report and to discuss the subject
among yourselves and with your clients, family, and friends.
David A. Lifson, who, with fellow NYSSCPA member Laurence Keiser,
has been helping the Society and the media sift through
the various issues that obscure rational analysis of Social
Security, focuses on what he calls the “eternal triangle”:
benefits, return on investment, and taxes or other funding.
The solvency of Social Security requires balancing all three
factors over time; changing one will affect the other two.
future viability of Social Security depends upon the taxes
collected, the return on investment of surplus taxes over
time, and the benefits paid out. The AICPA’s analysis
projects that these factors will cause the Trust Fund to
be depleted by the 2040s. If these projections prove accurate,
keeping the program afloat would require that we, as of
today, enact a $3.5 trillion funding infusion, increase
the payroll tax by 1.9% (from 12.4% to 14.3%), or reduce
benefits by 12.6%. If no changes in funding or investment
are made, benefits would have to be reduced by 27% after
the surplus is exhausted.
Social Security funding issue is also inextricably tied
to other social and healthcare-funding factors. The number
of people receiving Social Security benefits, the costs
of living, and the costs of healthcare will be vastly different
in the not-too-distant future. For many reasons, including
the fact that people now live longer and therefore need
more (and more costly) medical treatment, the Medicaid and
Medicare program costs are growing faster than the costs
of the Social Security program over the same period of time.
Social Security’s benefit goals and funding requirements
should be placed in the context of seniors’ changing
needs and the government’s overall fiscal outlook.
current debate over individual accounts is part of the larger
question of whether people should be allowed to invest retirement
savings in stocks, which produce greater returns but entail
greater risks, or in less-risky bonds; only in federally
insured savings vehicles; in a combination; or a new type
of investment. Return to the eternal triangle: If taxes
and benefits are assumed to be constant, resolving the Social
Security funding deficit requires greater return on investment—and,
most likely, greater risk, to be borne by the individual
or the government.
fact that there is no simple solution makes the situation
more dangerous, because major changes like this take time
to show results. It will require patience to implement a
plan and follow it through without being distracted by another
crisis or political agenda. We can’t afford those
kinds of games anymore.
Publisher, The CPA Journal
Executive Director, NYSSCPA