(HOST) When it comes to debate about the federal budget, commentator and former Vermont governor, Jim Douglas, thinks we need to admit there’s at least one very large elephant in the room.
(DOUGLAS) Ida May Fuller was a legal secretary working in relative obscurity in Ludlow, when she was catapulted into the limelight in 1940. She turned 65, retired and became the first beneficiary of Social Security, which had been enacted five years earlier. She had paid in $24.75 and drew a benefit of almost $23,000 over the next 35 years, nearly 1000 times what she had contributed. The very first recipient shattered the actuarial tables and the trust fund has been under stress even since!
Social Security taxes were raised and benefits enhanced throughout the ’50s and ’60s; in 1972 the payments were indexed to inflation. 11 years later the trust fund was nearly empty when a bipartisan fix was applied, including a gradual rise in the normal retirement age to 67. Although those changes protected the program, the fund is now receiving less each year than it pays out, so additional reforms are needed.
Social Security has long been viewed as the ‘3rd Rail’ of politics: touch it and you die. But now more Americans understand the need to get entitlement spending under control. Several proposals have been advanced this year, including increasing the income level subject to the payroll tax, slowing the growth of future benefits, allowing for partial benefits early with the rest drawn later and increasing the normal retirement age to 69 or 70.
Some have suggested that there’s no problem, that Social Security is its own separate, off-budget program and that it has nothing to do with the huge debt confronting our nation. Really? One dollar in every five that the Federal government disburses is for Social Security. Yes, there’s a so-called trust fund, but it consists of special Treasury securities. Now that the system is cash flow-negative, those securities will have to be sold and the U.S. Treasury will need to come up with the cash. Except there isn’t any cash, so it means more borrowing. It’s hard to argue that everything is fine with Social Security in the face of a Federal debt approaching $15 trillion. It’s like a family saying, Well, one of our checking accounts is overdrawn and sinking deeper, but our other account still has a balance. I wouldn’t say the family budget is in good shape.
Social Security was passed to keep elderly Americans out of poverty, but the retirement age was set at 65 when life expectancy was 60. Now it’s 80 and Social Security is a middle class entitlement that is unsustainable. The demographic trend is inexorable. We’ll hear from those who reflexively stonewall any attempt at reform. I’m a life member of AARP and appreciate all the discounts, but the unwillingness of some to engage in a meaningful debate comes at the expense of my grandson’s financial security. We need to reflect the reality of a longer lifespan and put the program on a path to solvency now in order to avoid draconian cuts in the future. Then we can turn our attention to the bigger problems of Medicare and Medicaid.