Social Security Endures
Published: May 8, 2006
Buried in the newly released 2006 annual report on Social Security, there is good news on the program's long-term health. But don't expect to hear President Bush talking about it. His main comment on the new report is that the system is "going broke." He apparently still wants people to believe that their only options are ending up with nothing from the government in old age or relying on financial markets. That's a false choice and Americans recognized it as such when they rejected his push last year for private accounts.
Projected "cost rates" in this year's report show smaller annual deficits in Social Security than had previously been assumed, starting around mid-century. The 75-year projection ends in 2080 with a shortfall that is less than last year's estimates by $57 billion, in today's dollars. That's important, because the smaller the deficit, the less drastic the reforms needed to keep the program going strong.
The deficit is lower because government statisticians now assume that American women will have two children, on average, versus an earlier estimate of 1.95. The happy result for Social Security is that more taxpayers make for a healthier system. That is not to suggest that increased fertility is the key to strengthening Social Security. It obviously helps, as would more immigration or stronger wage growth.
What the big impact of small adjustments shows is that Social Security is a dynamic system, adaptable to the 21st century. Currently, it is able to pay full benefits until 2040. Reforms that are enacted between now and then must be structured to take advantage of shifts that work in the system's favor, and to protect against those that don't. To that end, phasing in a modest package of benefit cuts and tax increases over the next several decades is the best way to ensure that the system won't come up short a generation from now.