Why Congress is silent on Social Security

Last week, a friend sent me an e-mail attachment that claimed that the reason Congress hasn’t addressed the…

Last week, a friend sent me an e-mail attachment that claimed that the reason Congress hasn’t addressed the Social Security crisis is because members of Congress aren’t covered by Social Security.
I knew that was wrong. Members of Congress have been paying into Social Security since 1983.
The e-mail message also claimed that members of Congress have rich pensions that pay them their Congressional salaries for as long as they live. Why should they worry about Social Security?
But that information on the Internet, as is the case so often, also is wrong. Members of Congress pay 8% of their salaries into their own pension system. That pension plan is quite generous, as members of Congress with 20 to 25 years of service can retire with up to 80% of their salary. But that’s not enough to make members of Congress insensitive to the problems of Social Security.
Nor is the fact that so many members of Congress are millionaires — at least 30% of senators and more than 20% of representatives.
But the e-mail made me wonder why Congress has been silent on Social Security this year.
For almost four years, reform of Social Security was a major issue in Congress, but since the beginning of this year, not a word has been said about it. Apparently, the Social Security problem solved itself. Not!
The problem is that there is absolutely no consensus on a viable solution. President Bush and many Republicans believe that the solution is private Social Security accounts invested, at least partly, in the capital markets. To most Democrats, privatization of Social Security, even in part, is anathema.
No one wants to accept the obvious: that absent higher investment returns that might be provided by investing in equities, either Social Security taxes (aka contributions) must be raised or benefits must be cut, or some combination of both. That’s because such solutions would be politically painful.
As the baby boomers move into retirement, the strain on Social Security will increase year by year, and the pressure on Congress and the president to come up with a plan to strengthen the system will grow.
But the costs of any solution will grow exponentially at the same time. Those members of Congress who expect to still be in office in 10 years’ time are storing up ever bigger political problems for themselves by postponing the hard work of devising a solution.
According to the trustees of the Social Security fund, by 2017 the government will start paying out more each year to Social Security beneficiaries than it will collect in Social Security taxes, and by 2040, funding will be sufficient to pay only 74% of projected annual benefits that year.
The difference between what it collects and what it pays out will have to come from somewhere — additional government borrowing in the bond market or from tax revenues.
If the government doesn’t increase borrowing or doesn’t cut spending, taxes will have to rise.
That is because the money paid into the Social Security trust fund from Social Security taxes was invested in a special class of government bonds issued by the Treasury, which then used it to pay for the government’s operations.
So there isn’t any money in the trust fund, only IOUs from one part of the government (the Department of the Treasury) to another (the Social Security Administration).
When the revenues from Old-Age, Survivors and Disability Insurance taxes fall short of benefit payments, those special bonds will have to be sold back to the Treasury, which will have to find the money somewhere to make up the difference.
No doubt the members of Congress will continue to ignore the problem as long as possible, but between now and 2017 the elephant in the room will become too large to ignore.
My guess is that sometime about 2012 Congress will realize it no longer can delay and will take action.
At that time, some combination of tax increase and benefit cuts (mostly in the form of a later retirement age, already rising toward 67) will be passed.
Then Congress will breathe a sigh of relief, until someone points out the Medicare deficit, which, by some accounts, is larger than the Social Security deficit.
One thing is sure: After Congress addresses these problems, all of us will be paying higher taxes.