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Social Security News
Treasury Briefs Seek to Find Common Ground for
Launch of Social Security Reform
Basic problem is that benefits promised senior
citizens are $13.6 trillion above revenue projection
 Sept.
25, 2007 – Social Security has a basic problem, says a new report from
the Department of the Treasury - benefits promised to senior citizens
have a present value that is $13.6 trillion greater than the present
value of the revenues that the system is projected to receive. Most
everyone has known that the program is facing financial difficulty but
nothing is being done to fix it. The Treasury has issued the first of a
series of briefs aimed at finding common ground for lawmakers to launch
the needed reform.
The first brief, “Social Security Reform: The
Nature of the Problem,” was issued yesterday.
The brief clearly says they are only two ways to
solve the problem - by increasing revenues and/or by lowering benefits.
“There is no alternative to these two choices,” the
report states.
"I have had many conversations with members of
Congress in both parties, inviting them to discuss Social Security
reform with no preconditions,” says Treasury Secretary Henry M. Paulson,
Jr. in a statement issue yesterday.
“While differences over personal accounts and taxes
dominate the public debate over this issue, in my conversations I found
that there are many other things on which people agree. Everyone I
talked with recognizes the seriousness of the problem, and most agreed
on some of the principles and policies that must be part of the
solution.
"To build on these discussions, Treasury will
release a series of issue briefs that will focus on areas of common
ground, and provide straightforward analysis of the challenges facing
Social Security and the implications of potential reforms.
"By focusing first on areas of agreement, I hope
these issue briefs will narrow the divide and spur further discussions
of reform."
This first brief also explains the magnitude of the
financial challenge facing Social Security and why acting sooner and
spreading the burden of reform across more generations is fairer to
future generations.
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Bush Administration Urges Social Security Fix
By Martin Crutsinger
 Washington
(AP) Sept. 25, 2007 - The Bush administration said in a new
report Monday that Social Security is facing a $13.6
trillion shortfall in coming years and that delaying reforms
is not fair to younger workers.
A report issued by the Treasury
Department said that some combination of benefit cuts and
tax increases will need to be considered to permanently fix
the funding shortfall. But White House officials stressed
that President Bush remains opposed to raising taxes.
Treasury Secretary Henry Paulson said
he hoped the new report would help find common ground on the
politically divisive issue, but a key Democrat charged that
the administration will still try to fix Social Security by
imposing sharp benefit reductions.
>>
Read the complete AP Report |
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The key points are:
• Social Security faces a shortfall over the
indefinite future of $13.6 trillion in present value terms, an amount
equal to 3.5 percent of future taxable payrolls. Looking at the gap over
a shorter horizon provides only limited information on the financial
status of the program.
• Social Security can be made permanently solvent
only by reducing the present value of scheduled benefits and/or
increasing the present value of scheduled tax revenues. Other changes to
the program might be desirable, but only these changes can restore
solvency permanently.
• Delaying changes to Social Security reduces the
number of cohorts over which the burden of reform can be spread. Not
taking action is thus unfair to future generations. This is a
significant cost of delay.
• By itself, faster economic growth will not
solve Social Security’s financial imbalance—realistically, there is no
way to “grow out of the problem.”
What happened?
“It might be surprising that Social Security
promises to pay out so much more than it takes in,” the report says. “As is well known, the
program promises current and future workers a below-market rate of
return on contributions in the sense that most workers would do better
by directly investing their contributions (i.e., the taxes they pay into
the system) into U.S. Treasury bonds.
“Why must the system increase net receipts by $13.6
trillion if it is already requiring current and future workers to pay in
more than they will receive?
The answer relates to the system’s generosity to
early birth cohorts—generations of workers now either retired or
deceased.
“Social Security paid these previous cohorts
benefits that exceeded their lifetime contributions by more than $13.6
trillion.
“In order to finance this gap, later birth cohorts
must receive benefits whose value (relative to the value of the taxes
they pay in) is lower by the same amount—that is, they must pay a net
tax (again, the difference between the present value of taxes and
benefits) of more than $13.6 trillion. Under current law, a portion of
this net tax is being levied already; in order to make the system
solvent, the net tax needs to be increased by an additional $13.6
trillion.”
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