Last week, the House of Representatives voted unanimously to increase Social Security benefits for widows and divorced women. Rep. Clay Shaw (R-Fla.), chairman of the Social Security subcommittee of the powerful House Ways & Means Committee sponsored the bill. It essentially expands benefits for widows whose spouses retire or die before they reach retirement age and makes it easier to receive benefits for disabled widows and divorced women who remarry.
The truth is, Social Security has many inequities and quirks that need to be corrected so that the program can better redistribute money to those who need it most. But these changes – while sorely needed – should be made in a larger context that takes into account the program's broader problems.
In just 15 years, Social Security will experience a transformation. The taxes paid into the program each year will no longer cover the program's cost each year, and Social Security's annual surpluses will become annual deficits. All told, we'll have to find an extra $25 trillion somewhere in the budget to keep Social Security fully funded over the next 75 years.
Why is this happening? Between now and 2050 the number of elderly in America will more than double, which drives the cost of Social Security ever higher. At the same time, the birthrate is falling so there will be fewer new workers to pay the increasing costs.
Those costs will be substantial. In 2050, when today's youngest workers begin to retire, Social Security benefits will cost each American worker 17 percent of his or her paycheck. And that's just for Social Security. If we also include the other programs that pay benefits to the elderly, like Medicare, Veterans Affairs and a portion of Medicaid – the other program that pays benefits to the elderly – workers will pay a third of their incomes right off the top, and that's before they pay income taxes or save for their own retirement.
Clearly, we need to make some changes, and we'll have to make some difficult choices to get there. Thus, when the House added additional promises to the already strapped system – without addressing the system's larger problems – they really did Social Security a disservice. They added benefits to an already overburdened program, which makes the long-term costs more difficult to bear.
The effects of America's aging population – and the burden that our children and grandchildren will bear as a result – is the reason many public policy experts advocate the creation of personal retirement accounts.
Under a personal retirement account (PRA) plan, younger workers could choose to invest a portion of their Social Security taxes in the stock market and earn a market rate of return, compounded over the investor's working life.
As more and more workers with PRAs begin retiring, the portion of retirement benefits paid by individual accounts increases, and the government's obligation to pay retirement benefits goes down. Thus, the demands on our children, grandchildren and great-grandchildren to fund Social Security decline with each passing generation.
A majority of Americans agree. In fact, according to recent polls, more than 55 percent of people support such a reform. Younger Americans (age 18 to 34) favor the reform plan by a margin of 4-to-1, even after the Enron debacle and the recent stock market slump. And that's good news; after all, they are the ones who will be affected by the reform plan.
It's a good thing that Members of Congress are concerned about needy populations and are acting in a bipartisan way to do what they can to help. But it would be more beneficial if Congress would apply this same bipartisan spirit to address the true needs of the Social Security system.