President Bush has launched his promised campaign to revamp Social Security, arguing that future funding shortfalls could be made up by allowing workers to put part of their contributions into investments under their own control. Opponents such as AARP, the organization for retired people, say his plan would destroy the 65-year old safety net, slashing benefits received by older Americans.
Differences on the issue are so wide that the two sides cannot even agree on the threshold question: Is the Social Security system really in financial trouble?
"The answer is, it depends on your time horizon," says Brigitte C. Madrian, professor of business and public policy at Wharton. "There is no crisis tomorrow. There is money, benefits will be paid ... But at some point in the future the money is going to run out, and at that point there are two choices: increase taxes or cut benefits. And neither one of those is particularly palatable."
Most everyone agrees the system is currently well in the black. The 12.4% payroll contributions divided evenly between workers and their employers exceed the payout to current beneficiaries. This has allowed $1.5 trillion to accumulate in a reserve "trust" that holds U.S. Treasury bonds.
Most also agree the system could keep running pretty much as is for decades. Contributions will exceed payouts until about 2018. After that, as more and more baby boomers retire, to be supported by fewer workers, contributions will lag payouts, with the difference drawn from the trust. If no changes are made, the system should continue to pay full benefits until at least 2042. After that, benefits would have to be cut by about 30%.
The big question is what happens way down the road. The Social Security Administration says the system is $3.7 trillion short of what it needs to maintain the current level of benefits over the next 75 years, the standard period for evaluating the system's health.
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