Social Security

Dana Milbank is concerned about the Social Security "crisis." In his column in the Washinton Post yesterday. He stated

Social Security will go into the red in 2017 and become insolvent 24 years later, according to the system's trustees. Medicare, meanwhile, starts bleeding in 2013 and goes under in 2019.

Fixing the two would require Medicare and Social Security benefits to be cut immediately by 51 percent and 13 percent, respectively, perhaps by raising retirement ages.

First off he does the clever trick of putting the two programs together as if they were the same problem. They are not... Medicare is skyrocketing health care costs (like all the private insurance companys are having to deal with too) Social Security is a demographic shift that requires modest program changes.

But my second problem was his "fix" didn't even include a tax increase. He didn't even mention the possibility! I came of age in the clinton era, when we raised taxes and the economy grew at the same time. I'm not as scared of modest tax increases if they are important and effective tools for solving a fical problem the government can't get around.

Dean Baker has other thoughts for Milbank about the Social Security "Crisis"

[Milbank] is REALLY alarmed that President Bush's Social Security trustees project that the program will face a shortfall in 34 years. (The non-partisan Congressional Budget Office projects that the program will be able to pay all scheduled benefits for the next 39 years with no changes whatsoever.)

Milbank is either too young or to old to remember that Social Security had faced problems in the past. In 1983, the program literally ran out of money. Guess what? No one missed a check. President Reagan and Congress set up a commission (chaired by Alan Greenspan) and they produced a compromise package that is now projected to leave the program fully solvent for 63 years.

While it would not be advisable to wait until the trust fund is empty, we are still 39 years from our next 1983. Mr. Milbank must think that this country is in great shape if he thinks this distant and relatively minor problem should be at the top of the national agenda.

Btw, if we changed our immigration rules so that the Post and other news outlets could freely hire more qualified columnists than Mr. Milibank at lower wages, it could eliminate close to half of the projected shortfall by bringing a larger share of wage income under the cap on the Social Security wage tax. This would be a real win-win policy. Where are the free-traders?

So much for the boom...

Economist Dean Baker points out why the baby boom has already made its greatest impact on the Social Security fund

In Monday's paper, USA Today reports on a growing backlog of disability cases being processed by the Social Security administration. The article tells us that the aging of the baby boomers is a main cuplrit and the problem will get worse as the boomers continue to age.

Actually, the problem won't get worse, or at least the problem won't get worse because the boomers are aging. Disabled people of working age get disability benefits. When workers hit age 62, they qualify for retirement benefits, whether or not a disability keeps them from working. Over the last decade, most of the baby boomers entered the ages of high disability rates from 50 to 62. Beginning next year, the oldest baby boomers will have reached age 62, the earliest possible age to receive SS retirement benefits. This means the full impact of the wave of aging baby boomers on the disability program should be felt this year. In future years, the burden on the disability program is likely to increase less rapidly.

That is exactly what the Social Security trustees project. From 2002 through 2007, they project that the cost of the disability program will have increased at an average annual rate of 8.6 percent (@ 6.1 percent in real dollars). From 2007 through 2016 they project that the cost will increase at an average annual rate of 5.8 percent (@3.3 percent in real dollars). In other words, the worst effects of aging baby boomers on the disability program have already been felt.