Thursday, March 25, 2010

Pay Now or Pay Later

According to the New York Times, Social Security will go into deficit this year.

This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.

Stephen C. Goss, chief actuary of the Social Security Administration, said that while the Congressional projection would probably be borne out, the change would have no effect on benefits in 2010 and retirees would keep receiving their checks as usual.

The problem, he said, is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax.

It’s not like the program is going to go broke; there are contingencies that were put in place the last time Social Security was threatened by a recession back in the 1970’s. But the sheer number of people who will in the next ten years become eligible for it — including me — will skyrocket thanks, ironically, to better healthcare and the fact that the bulk of the baby boomers will hit the magic number of 65 starting this year. So it might not be a bad idea to figure out some way to keep it solvent. If the Great Recession taught us anything, privatization isn’t the way to go — investing in Wall Street is a dicey choice — so there needs to be some really interesting alternatives brought into the picture.

Tangentially, it illuminates an interesting point. The anti-healthcare-reform folks are arguing that the federal government has no right to force people to buy insurance and therefore the healthcare bill, with its individual mandate, is unconstitutional. Except the government already forces everyone who earns a paycheck to pay for insurance and healthcare. Take a look at your paycheck. See that deduction — usually about 7.65% of your pay? That’s the FICA (Social Security) and Medicare deduction. That’s not withholding; that’s a payment into the system. You can’t not pay it unless you work for a state government that has an equivalent program like Colorado’s PERA, and that’s not voluntary, either. Also, you may pay into workers compensation, liability, and unemployment insurance funds. In Florida, depending on where you work, it can be about 3%. Again, it’s not voluntary. (Ironically, where I work the only “fringe benefit” that I can opt out of is health insurance.) So if the just-passed healthcare bill is unconstitutional, so is Social Security, Medicare, and just about every state pension plan on the books. Given that we’re approaching the 75th anniversary of Social Security and the 45th anniversary of Medicare and so far no one’s been able to mount a credible challenge to their legality, I’d say the chances of tossing the bill on those grounds are a bit shaky.

Besides, do you really want to tell several hundred million aging boomers that they’re out of luck? That would be a major bummer.