Social Security Mandate Crashing : A Major Crisis?

The problem of financing our huge mandates, like Medicare and Social Security, is a must as the money is about to run out. Mr Obama has no cure except tax and tax some more.

Paul Ryan has a solution, maybe not the best, but still a solution to move us forward and save the system for the immediate future.

Is It Too Late to Fix Social Security's Finances?
Source: Charles Blahous, "Is It Becoming Too Late to Fix Social Security's Finances?" Economic Policies for the 21st Century, August 31, 2012.

September 6, 2012
Charles Blahous, a research fellow with the Hoover Institution and a senior research fellow with the Mercatus Center, says one of his duties as a public Social Security trustee is to explain the program's financial condition. Social Security's future, at least in the form it has existed dating back to FDR, is now greatly imperiled.

A solution is rapidly becoming more difficult:

•The baby boomers are starting to retire. Lawmakers have historically been very reluctant to cut benefits for beneficiaries once they start receiving them. This means that any sacrifices will likely be concentrated on younger generations who already face net income losses through Social Security as it is. With every further year of delay lawmakers must therefore consider sharper benefit growth reductions and/or tax increases.

•A solution requires substantial compromise by one or both sides. Thus if Social Security finances are to be repaired, someone must dramatically compromise: either progressives must accept substantial benefit growth reductions, conservatives substantial tax increases, or both. Unfortunately, we are already long past the point where there is precedent for a compromise of this magnitude.

•There is a huge disparity between the problem's urgency and the rhetoric applied to it by substantial factions of the body politic.

If a financing solution cannot be reached, then Social Security's self-financing construct would need to be abandoned. Assuming the program continues to pay benefits, it would have to permanently rely on subsidies from the general fund as Medicare now does. This would be a valid policy choice, but it carries unavoidable consequences. It would mean an end to one of the program's foundational principles: the requirement that Social Security pay its own way through a separate trust fund. It would also mean an end to FDR's conception of an "earned benefit" program in which workers were seen to have paid for their own benefits.

Upon merging into the general fund, Social Security benefits would be far less secure going forward. Benefit payments would have to compete with other annual spending priorities, and would be limited to those deemed affordable given pressures elsewhere in the budget.

Those who care about the Social Security program need to clearly understand the consequence of this ongoing neglect; that time for a realistic financing solution has nearly run out.