Saving Social Security

Respect for elders has ever been a mark of civilized society. The concept is enshrined by the Judeo-Christian tradition in the commandment to “honor thy father and mother.” A moderate balancing of generational differences is similarly a sign of a healthy culture.

The sobriety and realism of the elderly help to temper the optimism of the young. The enthusiasm and energy of children offer hope and stem the tendency toward cynicism that comes with age. Threats to this balance arise from time to time. One such threat was highlighted recently by a report from the General Accounting Office (GAO) on the state of the social security system in this country.

As has become widely understood (political rhetoric to the contrary notwithstanding), social security denotes a transfer of funds from the currently employed to the non-working elderly. Social security funds are not stashed in a lockbox, to be opened when one turns 65. One’s own social security benefits will be entirely dependent on the funds levied on workers paying into the system when one retires.

As is also becoming increasingly well known, this transfer payment system is in serious jeopardy. According to the GAO, obligations will exceed income in the year 2018. At that point, a choice will have to be made between decreasing benefits or fully funding the system, the latter option entailing tax increases and/or budget cuts in other areas.

The main reason for this impending crisis is demographics. The declining birth rate in effect since the “baby boom” of the 1950s and early ‘60s, combined with the imminent retirement of that baby boom cohort, means that the ratio of working people to retired (social security recipients) will drop markedly over the next several decades.

That this problem is becoming increasingly well known is reflected in polls that indicate widespread doubt among those under fifty years of age that social security benefits will be there as promised when they retire. Younger workers believe that the system will fail them.

A number of plans have been floated for saving the system, all involving some measure of investment in stock and bond markets. The advantage of such plans is that the investment instruments purchased now actually earn dividends and increase in value, virtually guaranteeing that funds will be available upon an individual’s retirement. President Bush raised the issue of social security privatization during the 2000 campaign, and various politicians have devoted desultory attention to it ever since. The new GAO report should be a spur to implement this kind of reform.

The potential beneficial financial impact for the individual worker is obvious. It is important to note, in addition, that the societal impact of failing to reform the system could be damaging. The danger is in the fallout from “significant intergenerational equity issues,” to use the parlance of the GAO.

As the polls regarding privatization show, there is already generational tension on this issue. Support for reform decreases significantly as one moves up the age brackets. The hesitance of those at or near retirement to tinker with a system that will serve them reasonably well is understandable. From a broader perspective, though, an intransigent stand against reform on the part of older age groups is the equivalent of parents spending carelessly and leaving their kids to pick up the tab after they are gone.

Generational respect already shows signs of stress. The last couple decades have seen a move toward acceptance of euthanasia in the United States, culminating in its legalization in Oregon 6 years ago. Among those sympathetic to this development, the most common concern is causing “inconvenience” to those who must take care of them as they age. It is also common for family pressure to play a part in convincing the elderly to foster death wishes. Loneliness and depression are rife among the aged, especially those shuffled off to nursing homes and rarely or never visited by friends or relatives. This separation deprives both young and old of the benefits that each group can offer to the other.

There is no reason to add fuel to this smoldering problem. If, as is likely given political dynamics, payroll taxes are raised rather than benefits decreased, this situation will aggravate the sense that the elderly are a burden rather than an asset to society. Young people should expect to care for their parents as they lose the capability to care for themselves, and this responsibility includes a financial aspect. Making intergenerational dependence more onerous than it must be, however, is a mistake with potentially grievous consequences.

Fortunately, the current surplus in the social security balance sheet makes reform a relatively painless proposition. Portions of current workers’ social security payments could begin to be shifted into private accounts that are invested in the market, without diminishing the payments promised to current or imminent retirees.

As is usual with systems in need of reform, waiting will only make the problem worse and more difficult to solve. “The window of opportunity to address the entitlement challenge is narrowing,” warns the GAO. The need for reform is recognized on both sides of the aisle, as witnessed by former Democratic congressman Timothy Penny’s recent piece on National Review Online. Congress should act quickly, to tap the benefits of equity markets, to provide security for America’s seniors, and to encourage good will rather than strife between the young and the old. It is one way to approach the generational harmony conveyed by the scriptural apothegm: “Grandchildren are the crown of the aged; and the glory of sons is their fathers” (Proverbs 17:6).

Kevin Schmiesing is a research fellow for Center for Economic Personalism at the Acton Institute.

(This article is a product of the Acton Institute —, 161 Ottawa NW, Suite 301, Grand Rapids, MI 49503 — and is reprinted with permission.)

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