Editorial

The recently released "trustees’ report on Social Security shows that the program does not face an immediate crisis and that — even in the long run — will still have substantial resources to pay benefits. Nevertheless, Congress needs to restore Social Security’s long-term solvency so that it can meet its promises, and acting sooner is better than acting later" - Robert Greenstein, Center on Budget and Budget Priorities (CBPP).

According to the CBPP, the report shows that Social Security will be able to pay full benefits until 2037, at which point the program’s trust fund will be exhausted. After that, Social Security will be able to pay over 75 percent of scheduled benefits. This exhaustion date is unchanged from the date in last year’s report.

The size of the shortfall over the next 75 years — 0.7 percent of Gross Domestic Product over the period, or 1.92 percent of projected taxable payroll (the total of wages and self-employment income subject to Social Security taxes) — represents a mild improvement from last year’s report. In 2009, the trustees put the 75-year deficit at 2.00 percent of taxable payroll. Of the improvement — which equals 0.08 percent of taxable payroll — the actuaries ascribe 0.14 percentage points to the positive effects of the new health-care reform law, which is expected to shift some employee compensation from (nontaxable) fringe benefits to (taxable) wages, and a negative 0.06 percentage points to the change in the 75-year period being examined from 2009-2083 to 2010-2084. All other changes are negligible.

Social Security’s annual tax revenue has recently slipped below the benefits it pays. although it is estimated that as the economy recovers, tax revenues will again exceed benefit payments for several years and then will begin falling short of expenditures again in 2015. This shouldn''t pose a problem for paying Social Security benefits. Because Social Security can draw on its trust fund — which now stands at $2.6 trillion and will keep growing until 2025. the problem is a mismatch between total Social Security revenue (including interest that the trust fund earns on its reserves) and expenditures that eventually materializes as tens of millions of baby boomers retire, and that will cause trust-fund exhaustion in 2037 if no action is taken.

Yest another reason underscoring the importance of allowing the Bush tax cuts for Americans making over $250,000 to expire at the end of this year. "If Congress instead extends those tax cuts for one or a few years and subsequently makes them permanent, the revenue loss over the next 75 years just from extending the tax cuts for people making over $250,000 — the top 2 percent of Americans — will be almost as large as the entire Social Security shortfall over this period." - Robert Greenstein, Center on Budget and Budget Priorities (CBPP).

Even though Social Security faces no imminent crisis, policymakers should act sooner rather than later to restore its long-term solvency. By acting sooner they can apply a fair way to spread out the needed adjustments in revenue and benefit formulasaallowing people to better plan for their work, savings, and retirement.

Acting sooner also helps by reducing federal borrowing in coming years. The higher the amount borrowed, the higher the federal debt will be — and the more interest we will owe.