Labor & Employment Law

Flash! Social Security?s Not Doomed

By Mike Hall

Here?s some news that gets buried in the normal the-sky-is-falling Social Security coverage. Although the weak economy is having a short-term impact on Social Security?s finances, Social Security is still projected to run an $868 billion surplus over the next decade, according to a new report from the Congressional Budget Office (CBO).

Economic Policy Institute (EPI) economist Monique Morrissey says the latest report shows the surplus is ?sufficient to last through the peak baby boomer retirement years.?

Nevertheless, gloomy news reports show that when it comes to Social Security, no news is bad news.

For example, an Associated Press story on the CBO report claimed that ?Social Security will run at a deficit this year and keep on running in the red until its trust funds are drained by about 2037.? Says Morrissey:

The story misrepresents the trust fund?s solvency by excluding interest earnings, a major source of revenue for Social Security. The article also fails to mention that even if nothing is done to shore up the system?s finances, current tax receipts will be sufficient to cover most benefits in 2037, which will still be higher in inflation-adjusted terms than benefits are today. Social Security is not in crisis.

For more on Social Security?s long-term finances, check out Morrissey?s new EPI paper, which shows the biggest cause of Social Security?s projected long-term shortfall is not rising life expectancy or the baby boomer retirement, but rather stagnant wages and growing inequality.

She writes that rising life expectancy represents ?only a small part of the fiscal challenge facing Social Security.?

The bigger problems are weak wage growth and rising earnings inequality, which account for more than half the projected shortfall that has emerged since the system was last restored to long-term balance in 1983. Earnings inequality has eroded Social Security?s taxable earnings because earnings above a cap are exempt from Social Security taxes.

Likewise, slower wage growth increases the costs as a share of taxable earnings. Rising health care costs, which create a growing wedge between compensation and taxable wages, a falling birth rate and higher disability take-up are also contributing to the projected shortfall.

Full post as published by AFL-CIO NOW BLOG on January 28, 2011 (boomark / email).