Published: January 24, 2007 10:13 am            

Social Security crisis looming

As the years roll by and the "baby boomer" generation inches toward retirement this country nears a tipping point.

In a statement to the Senate Budget Committee Fed Chairman Ben Bernanke said, "If early and meaningful action is not taken, the U.S. economy could be seriously weakened."

According to census records there are approximately 78 million baby boomers. The first of those 78 million will begin retiring within the next year, according to the Associated Press.

While I am no economist, the thought of the amount of Social Security, Medicare and other government programs going to be paid out to these people is unfathomable.

The Fed chairman's grim remarks painted a pale future for a welfare country that once prided itself on rugged individualism.

The promises made to millions by Roosevelt during the Great Depression, followed by more governmental promises by Lyndon B. Johnson in the 1960s are coming to haunt the nation.

When Social Security was first formed the idea was that people would pay into it — by force, not by choice — and that money would be set aside to be drawn upon their retirement.

Congress never used the money that way. Instead they spent it on various things s it came in. Now we are left with the question, “What are we going to do?”

With the people we elect to office, real change is not likely to occur in the foreseeable future.

The Fed chief said there are some very difficult changes that will have to take place in order for this country to meet its obligations.

The problem lies in this, the government will have to tax workers more in order to pay what’s owed to the retirees. Likely, the federal government will go into immense deficit spending in order to pay what’s owed, thereby causing a spike in interest rates as the federal debt reaches uncontrollable levels.

“Thus a vicious cycle may develop in which large deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits,” Bernanke told the Senate committee.

According to Andrew Biggs, a Social Security analyst with the Cato institute, Social Security will face trillions of dollars in tax increases over the coming years, even if the program stays in balance with the nation’s economy.

That’s trillions with a “T” folks, more money than can hardly be imagined. Do you want to know how many trillions? It’s estimated that Social Security’s unfunded liabilities total approximately $12 trillion and is getting higher every year.

The Cato institute suggests that for each year the country waits to do something about Social Security those costs could go up by $150 to $600 billion. All this is predicted to begin happening in less than 15 years.

Workers now have to pay more than 12 percent of their income into Social Security alone. Workers with 30 years or more to retirement likely will not get any benefit for themselves because the system probably won’t be in place to pay them during their retirement years.

In a macro-economics class in college I remember a question a professor posed to the class, “at what point of taxation will people quit working entirely?”

There was an answer to that question. The professor said 55 percent paid in taxes is about the highest threshold the public can tolerate when paying taxes before it gives up working.

Once that happens, those people who are then on Social Security and Medicare will stop receiving benefits because there is no more money to be drained from the public.

In 1950 there were 16 workers paying taxes for every person on Social Security. Currently there are approximately three workers for every person drawing Social Security. In just a few years — less than 10 — there will be just two workers for every person on Social Security.

That 12 percent now getting paid into Social Security will have to go up to 18 percent in just a few short years unless something is done to fix the looming crisis.

Once again, there are no easy answers, but sticking our collective heads in the sand and doing nothing is only going to make the situation worse.

Maybe it’s time to look at private accounts again. It has worked well for corporate pension plans, call your representative and urge them not to be so quick to dismiss it this time.



Wayne Stewart writes for Herald-Press in Palestine, Texas.

        

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