Universal guaranteed retirement money for all -- the Social Security Act of 1935 offered an attractive promise to Americans struggling to make it through the Great Depression. No wonder it met with political success. The government pledged that if workers paid a Social Security tax on all of their wages, they would be supported in their old age.

Fast forward sixty years or so. Although financially stable for decades, the now-antiquated system is facing hard times. Reports of the system's imminent insolvency have turned cries of support into alarm. The Social Security system is expected to begin running a deficit within only 15 years (paying out more in benefits than it collects in taxes). Without reform it will be unable to pay promised benefits by around 2034. What began as a plan for increased financial security has instead thrown the country towards a future of economic uncertainty.

Congress designed Social Security to operate as a pay-as-you-go system. That means no money is actually set aside by the government to pay benefits in the future. When workers pay taxes into the Social Security "trust fund," most of the money is immediately paid out as benefits to today's retirees. The leftovers go straight to the Treasury in exchange for federal IOUs and are used to finance the national budget.

But when Social Security begins running a deficit in 2012, there will be no more leftovers, and the government must begin paying back its IOUs to keep the system afloat. Because no money has actually been saved for this purpose, Congress will be forced to significantly increase public debt, cut spending or raise taxes.

Even worse, unless something is done, the entire Social Security system will use up its government IOUs and go bankrupt by 2034. (Bankrupt = It will not have enough money to pay retirees' promised benefits.) No wonder citizens of all ages are alarmed -- will they ever see their Social Security dollars again? One study shows that more people age 18 to 34 believe in UFOs than believe they will ever collect Social Security benefits!

Changing demographics have spurred the impending crisis. Today, fewer workers support each beneficiary. The baby boomers are aging and not having as many children, and people are living longer, thus collecting benefits for a longer period of time. Since the system is pay-as-you-go, these demographic changes spell trouble. A smaller and smaller group of workers will have to provide for more and more recipients.

The size of the problem should not be underestimated. The government will owe an estimated total of about $9 trillion more to current workers when they retire than it will have collected from them in taxes. This Social Security liability is more than twice the official national debt. It is larger than the total value of the United States gross domestic product.

Raising Social Security taxes enough to keep the government's entitlements promises to future retirees would require doubling or tripling these taxes. That means taking 30 to 40 percent of every worker's wages just to pay retirement benefits.

Such tax hikes are not economically or politically feasible. Alternative remedies -- which keep our promises to today's seniors without bankrupting other generations -- must be identified and pursued. Without careful, comprehensive change soon, at least one generation of workers will be left stranded without benefits. Not a happy ending for a system designed to ensure exactly the opposite: unfailing financial security for everyone.

Provided Courtesy of
Citizens for a Sound Economy Foundation
1250 H Street, NW Washington, DC 20005-3908
1-888-JOIN-CSE, (202) 783-3870
http://www.cse.org/cse/about2.htm

Highlights from Current Social Security Data, 1999

For a statistical overview of current Social Security programs visit the Social Security Administration's web site.