DALLAS (March 30, 2000) — Responding to the new report by the Social Security trustees that the Social Security trust fund has an additional three years of solvency, the Dallas-based National Center for Policy Analysis (NCPA SM) warned today against using this news as an excuse to delay needed reforms.
"Our fast growing economy has helped delay the inevitable," said NCPA Senior Scholar Dorman Cordell. "But we shouldn't be fooled. Even the most robust economy is not going to solve the demographic dilemma facing Social Security. What we're hearing now just means that instead of our children, our grandchildren are going to have to deal with this disaster."
The reason? The current Social Security system is "pay-as-you-go" — today's workers pay the benefits for today's retirees. Unfortunately, the ratio of workers who pay Social Security taxes to retirees who receive benefits is decreasing and will continue to decrease because people are living longer and are having fewer kids. This means there are fewer future workers to pay the benefits of future retirees.
For example, in 1945, two persons were collecting benefits for every 100 workers paying Social Security tax. By 1999, this number had increased to 30 beneficiaries for every 100 workers; and the Social Security Administration projects that by 2075, there will be 54 persons receiving Social Security benefits for every 100 persons paying into the system.
Cordell pointed out that the best way out of the demographic dilemma would be to allow workers to invest a portion of their payroll tax dollars into private accounts that are invested in the private capital market. This would fundamentally change the nature of the system from pay-as-you-go to one that is self-funded.
"Unfortunately, optimistic reports like this help those who would hold the needed reforms hostage to politics," Cordell added. "Reforms may only happen when people realize how better off they would personally be under a private system, and how much grief reform would spare their children and grandchildren."
To assist this, the NCPA has developed an online benefits calculator (www.ncpathinktank.org) that will allow workers to determine their personal stake in Social Security. The calculator shows people what they will pay in taxes, what they will receive in benefits, and what they would have received if they had invested the same dollars in a private account.
For example, according to the NCPA's calculator a 25-year old waitress can expect to pay more than $300,000 (in real terms) in Social Security taxes by the time she retires, but her lifetime benefits will be little more than half that amount. Her monthly Social Security benefit will be $920 in today's dollars, compared to a private pension of $2,303 if her taxes had been invested in stocks and bonds.