Economic Crisis Puts Strain on Social Security
As the Associated Press recently reported, Social Security has come under considerable strain as a result of the economic crisis. Payroll tax revenues have suffered -- both because of lower wages and fewer contributors (due to high rates of unemployment); and at the same time, outlays have increased as many newly unemployed seniors have begun collecting early retirement benefits.
As economist Alan Auerbach explained:
"A lot of people who in better times would have continued working are opting to retire...If they were younger, we would call them unemployed."
As we've shown before, the projected fiscal consequences of these two developments is quite large. Instead of running $700 billion surplus over the next decade, the program is now projected to run a $19 billion deficit. And of course, as we go further out, the shortfall is projected to be much larger.
Yet even as the Social Security system is projected to be in deficit over the next couple of years, many have been calling for an ad-hoc benefit increase, in the form of a cost of living adjustment (COLA) -- even though prices in the economy have not increased.
Instead, they should be calling for benefit reductions and or tax increases, to ensure the system doesn't run out of money. Recently, the Employee Benefit Research Institute released a number of options to close Social Security's long-term gap -- and politicians should review them carefully.
It's time to put Social Security reform on the legislative agenda.