Social Security debate (United States)

This article concerns proposals to change the Social Security system in the United States. Social Security is a social insurance program officially called "Old-Age, Survivors, and Disability Insurance" (OASDI), in reference to its three components. It is primarily funded through a dedicated payroll tax. During 2009, total benefits of $686 billion were paid out versus income (taxes and interest) of $807 billion, a $121 billion annual surplus. An estimated 156 million people paid into the program and 53 million received benefits, roughly 2.94 workers per beneficiary.
Reform proposals continue to circulate with some urgency, due to a long-term funding challenge faced by the program. Starting in 2015 and continuing thereafter, program expenses are expected to exceed cash revenues. This is due to the aging of the baby-boom generation (resulting in a lower ratio of paying workers to retirees),expected continuing low birth rate (compared to the baby-boom period), and increasing life expectancy. Further, the government has borrowed and spent the accumulated surplus funds, called the Social Security Trust Fund.
During 2011 the Trust Fund held $2.6 trillion, up from $2.5 trillion in 2010. The Trust Fund consists of the savings of worker contributions and associated interest, to be used towards future benefit payments. Funds are held in United States Treasury bonds and U.S. securities backed "by the full faith and credit of the government". The funds borrowed from worker contributions are part of the total national debt of $14.3 trillion as of March 2011. By 2015, the government is expected to have borrowed nearly $3.25 trillion from the Social Security Trust Fund.
Between 2015 and 2037, Social Security has the legal authority to draw amounts from other government tax sources besides the payroll tax, to fully fund the program. However, this will liquidate the Trust Fund during that period. By 2037, the Trust Fund is expected to be officially exhausted, meaning that only the ongoing payroll tax collections thereafter will be available to fund the program.There are certain key implications to understand under current law, if no reforms are implemented:

• Payroll taxes will only cover 78% of the scheduled payout amounts after 2037. This declines to 75% by 2084. Without changes to the law, Social Security would have no legal authority to draw other government funds to cover the shortfall and payments would decline without a large tax/revenue increase or increase in eligibility age.
• Between 2015 and 2037, redemption of the trust fund balance to pay retirees will draw approximately $4 trillion in government funds from sources other than payroll taxes. This is a funding challenge for the government overall, not just Social Security.
• The present value of unfunded obligations under Social Security as of August 2010 was approximately $5.4 trillion. In other words, this amount would have to be set aside today such that the principal and interest would cover the shortfall over the next 75 years. The estimated annual shortfall averages 1.92% of the payroll tax base or 1.0% of gross domestic product.
• The annual cost of Social Security benefits represented 4.8% of GDP (a measure of the size of the economy) in 2009. This is projected to increase gradually to 6.1% of GDP in 2035 and then decline to about 5.9% of GDP by 2050 and remain at about that level.

Former President George W. Bush called for a transition to a combination of a government-funded program and personal accounts ("individual accounts" or "private accounts") through partial privatization of the system.President Barack Obama "strongly opposes" privatization or raising the retirement age, but supports raising the cap on the payroll tax ($106,800 in 2009) to help fund the program In addition, on February 18, 2010, President Obama issued an executive order mandating the creation of the bipartisan National Commission on Fiscal Responsibility and Reform. which made ten specific recommendations to ensure the sustainability of Social Security.

Federal Reserve Chairman Ben Bernanke said on October 4, 2006: "Reform of our unsustainable entitlement programs should be a priority." He added, "the imperative to undertake reform earlier rather than later is great." The tax increases or benefit cuts required to maintain the system as it exists under current law are significantly higher the longer such changes are delayed. For example, raising the payroll tax rate to 14.4% during 2009 (from the current 12.4%) or cutting benefits by 13.3% would address the program's budgetary concerns indefinitely; these amounts increase to around 16% and 24% if no changes are made until 2037

Framing the debate

Ideological arguments

Ideology plays a major part of framing the Social Security debate. Key points of philosophical debate include, among others:

• degree of ownership and choice among investment alternatives in determining one's own financial future;
• the right and extent of government taxation and wealth redistribution;
• trade-offs between social insurance and wealth creation;
• whether the program represents (or is perceived) as a charitable safety net (entitlement) or earned benefits; and
• intergenerational equity, meaning the rights of those living today to impose burdens on future generations.

Retirees and others who receive Social Security benefits have become an important bloc of voters in the United States. Indeed, Social Security has been called "the third rail of American politics" — meaning that any politician sparking fears about cuts in benefits by touching the program endangers his or her political career. The New York Times wrote in January 2009 that Social Security and Medicare "have proved almost sacrosanct in political terms, even as they threaten to grow so large as to be unsustainable in the long run."