Monday, December 31, 2007

The Social Security "Crisis"

We've heard for years about a "crisis" in Social Security, as benefits are predicted to exceed FICA tax revenues at some time in the future, most recently in 2005 as President Bush tried to undermine the Social Security system by allowing workers to opt out of the system and create private accounts (which even the White House eventually agreed would not solve the financial problems of the system). But the assumptions made by the Social Security Administration are conservative and new projections often push the predicted shortfall further into the future. (The latest estimates, in the 2007 reports of the Social Security Administration, say that projected tax income will begin to fall short of outlays in 2017, and the trust fund will be exhausted in 2041.) Now, there are new reasons to believe that the predicted shortfall might never occur.

According to the book "Microtrends" by Mark Penn, a growing number of people are working past the traditional retirement age of 65, either by necessity or choice. For example, the number of workers 65 and older has almost doubled in the last 25 years, and a 2005 survey by Merrill Lynch found that three fourths of baby boomers were not planning a traditional retirement.

Of course, if people work longer, they continue to contribute taxes while delaying receipts of benefits. According to an economist at the Urban Institute, Eugene Steuerle, if everyone worked just one year longer than the SSA has been assuming, and so received one year less in benefits and contributed one more year of FICA taxes, the projected shortfall would disappear.

There is also recent news that the fertility rate for American women has reversed a long-term downward trend, and is now something like 2.1 children per woman, which exceeds the "replacement rate" and is one of the highest of any industrialized nation. That means that in 20 years we may have more workers than previously expected, and more tax revenue than previously predicted.

All of which means that the so-called "crisis" in Social Security might no longer exist (assuming it ever really did exist).

But funding Medicaid and Medicare is going to be a problem.

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