RE: Sorting out the issues

[National Dialogue Moderator <moderator>]

This response is to Amy Eunice's question about the Social Security's
system's "health."

It is not surprising that you express confusion over whether the
Social Security system is "healthy" or not, because there is an
entire cottage industry that has developed in an effort to persuade
Americans, alternatively, that the system is either perfectly fine
or heading towards immediate disaster.  Some think tanks in particular
devote tremendous energies to these sorts of semantic arguments,
saying that "there is no crisis," or it is a "phony crisis" --
expending tremendous time and energy trying to convince Americans
to look past certain specific facts about the system, and to pay
attention only to other more comforting ones.

You have asked for a straightforward answer, so let me begin with
that before moving to the subtleties as to why different people
respond differently.  The system is definitely in crisis, if we
define a crisis as being on the verge of requiring a huge increase
in tax levels to sustain, tax levels that will force future Americans
to surrender much more of their economic freedom than we and previous
generations were required to do. That is your straightforward
answer:  "Yes, the crisis is real."

The reason that so much conflicting information comes out about
this is that different participants in the debate want the public
to focus on different things.  If we focus on the actuarial deficit
alone, then it is possible to say that "there is no crisis."  As
I indicated in previous posts, the actuarial deficit can be eliminated
by actions as simple as accounting gimmicks.  The Social Security
actuaries estimate that the total long-range deficit is 2.07% of
total national payroll, and that the system will not become
technically "insolvent" until 2034.  Moreover, we could simply
eliminate this actuarial deficit by doing what President Clinton
and Congressman Nadler have proposed, by making a series of accounting
credits to the Social Security system of whatever size that is
necessary to balance the system on paper.

The problem is that these measures of actuarial balance have precious
little to do with the real task at hand.  A system could be
"actuarially balanced" if it experiences a surplus of $1 trillion
in one year and a deficit of $1 trillion in the next.  If we have
no means of saving that $1 trillion the first year, and simply
spend it on current government consumption, then we still have an
enormous problem the next year: where will the benefits come from?

This is essentially what the current Social Security system faces.
The actuarial deficit does not look that large by some measures
because one can sum near-term surpluses and past assets and offset
them in the government books against long-term deficits.  When one
looks at the real cash-flow of the system in real time, a profoundly
disturbing picture emerges.

Due to the aging of the population and the retirement of the baby
boom generation, the ratio of workers to retirees will drop quickly
within a generation to only 2:1.  Consequently, the tax cost of
supporting the system will rise by approximately 50% in that time,
from less than 12% today to approximately 18% by 2030.

What you are seeing in this debate is different people applying
different terms to define a "crisis." In the year 2030, in a
technical sense, the system is still "solvent" -- it has the legal
authority to collect whatever outlays are required to pay benefits,
meaning that the federal government would simply tax workers in
2030 at this enormous level.  But some would say that because the
system has not yet hit the 2034 insolvency year, there is "no
crisis."

But if, on the other hand, you are concerned about the amount of
America's economy that the federal government absorbs, then you
see a very real crisis.  Like me, you may not think that it is an
appropriate legacy to posterity to raise the tax rates required to
support Social Security by almost 50% within a generation.  Creating
the legal authority to compel this is easy to do, enables some to
say that there is "no crisis," but does not strike me as an
appropriate response to the challenge.  Simply declaring that future
generations will be taxed at the necessary levels to fund this
system enables some to claim irrelevance to the use of the word
"crisis," but future taxpayers may see it differently.

I hope that this provides an answer to your question as well as an
explanation of why you often hear competing descriptions of the
situation.  If the definition of "crisis" is when the system becomes
technically insolvent, this would not occur for 35 years.  But if
the definition of "crisis" is the inevitability of leveling
confiscatory tax rates (more than 30% for Social Security and
Medicare alone) to posterity, then the crisis is very real indeed,
and begins its inevitable course fairly soon, unless some
advance-funding is built into the system.

     Senator Judd Gregg