Celebrating and Strengthening Social Security
Since Social Security was signed into law by Franklin D. Roosevelt on August 14, 1935, it has become the largest government social insurance program in the world and the U.S. government’s single greatest expenditure, constituting $678 billion in outlays last year (about 5 percent of total U.S. GDP and 20 percent of the budget). Also known as OASDI (or Old Age, Survivors, and Disability Insurance), the Social Security system in the U.S. has developed into an important financial safety net for older Americans, as well as survivors and those with disabilities, providing them with a defined benefit during retirement in exchange for contributions through the payroll tax while they are in the workforce. In recent years, the Social Security program has paid out more than half a trillion dollars per year in benefits to more than 51 million American retirees, and with some estimates claiming that the program has been responsible for keeping up to 40 percent of Americans age 65 or older above the poverty line, its importance and positive impact are undeniable.
But with the Baby Boom generation beginning to retire in droves, the underlying financial structure of the program—with benefits for each generation of retiring workers being paid for by those currently in the workforce—will be strained because it must rely on an increasingly smaller workforce to support a growing proportion of retired Americans. With this ratio set to shrink significantly, calls for the reform of the Social Security system are becoming more and more urgent.
Without change, the Congressional Budget Office predicts that the program’s outlays will surpass revenues on an ongoing basis by 2016 and that the Social Security trust fund will be exhausted by 2043. The Trustees overseeing Social Security have issued even grimmer forecasts in the past; they are expected to issue their newest report on the state of the program tomorrow. The release of the report will no doubt highlight that Social Security is on an unsustainable path and likely stir new debate over what should be done to bolster its long-term finances.
Because the financial problems with Social Security won't come to a head for many years, policymakers have been loath to deal with the issue. But reforming the system now would be the more responsible course of action. The sooner we act, the more gradually changes can be implemented, allowing more options to be considered and giving those affected more time to adjust to any changes.
Everything must be on the table, including adjustments to both the benefits and the revenues side. Lawmakers must work in a bipartisan manner to devise a balanced set of reforms that will strengthen the program so that it will be around for future generations. If reform is done well, it can also help improve the long-term budget outlook for the nation.
Social Security will celebrate 75 years on August 14. Leading up to that momentous milestone, CRFB will post a series of blogs through next week looking at the program and how it can be reformed. We celebrate Social Security's 75th birthday and look forward to celebrating the next 75 years and beyond.