CHAMPAIGN, Ill. - Social Security is not "in crisis," "unsustainable," or even "bankrupt" - words that President George W. Bush has used to rally support behind his campaign to alter the retirement and insurance program - according to an article by a law professor at the University of Illinois at Urbana-Champaign.
Factoring in the huge annual surpluses currently collected by Social Security, general taxpayer revenues would not be needed to fund Social Security benefits until 2052, or 47 years from now.
Given that decades-long time frame, "a flip answer to the description of a Social Security 'crisis' would be, 'Who cares?' '' Richard L. Kaplan, an expert on federal taxes and retirement benefits, wrote in the April issue of ElderLaw Report, the leading monthly publication for practicing elder law lawyers.
"The more serious answer," Kaplan said, "is that Social Security receipts would continue to come in after 2052, and even with no surplus balance in the trust fund, the program could pay at least 81 percent of currently provided benefits as far as the eye can see."
Even if a funds shortfall did take place a half century in the future, Social Security benefits would not necessarily be cut by 19 percent or the program's payroll tax increased by the same percentage, according to Kaplan.
"It simply means that the revenue stream that is associated with Social Security would be 19 percent less than the program's projected benefits, requiring an allocation of funds from other uses of existing government resources."
President Bush's proposal to permit employees to divert 4 percent of their wages into individualized Social Security accounts would make Social Security's long-term situation "worse, not better," Kaplan wrote.
"Individual Social Security accounts do not address Social Security's projected shortfall. Indeed, that is why the administration anticipates 'transition costs' of anywhere from $750 billion to $2 trillion to implement these accounts."
A number of options exist to plug any projected Social Security shortfall in the future. One option would be to lift the annual cap on Social Security payroll tax (this year's cap is $90,000), which would raise taxes on only a small percentage of taxpayers.
Another approach would be to raise the age of full retirement. When Social Security was adopted in 1935, the average life expectancy of Americans was 61.5 years. Today it is closer to 77 years. Raising the full retirement age beyond the present 67, Kaplan noted, could eliminate almost all of the program's projected shortfall.
Currently, Social Security collects significantly more money from the workforce than it spends on benefits and program administration for retirees. Last year's surplus, for example, was almost $152 billion.
According to forecasts by the Congressional Budget Office, Social Security's annual revenues will dip below its annual expenditures beginning in year 2020.
"Such long-range forecasts are notoriously inaccurate due to a wide range of variables involved, including future earnings of workers, wars, natural disasters, number of deaths and births, and even the level of immigration, legal or otherwise," Kaplan wrote.
But even if this forecast pans out, it does not account for the surpluses accumulated by Social Security from previous years. As a result, the forecasted shortfall of $16 billion in Social Security tax receipts in year 2020 would be dwarfed by the same year's Social Security interest income of $206 billion, "to say nothing about the anticipated balance in the trust fund at that point of $3.6 trillion," Kaplan noted.
In addition to raising many practical issues involving administration and investment options, the individual investment accounts proposed by President Bush would "only exacerbate" Social Security's potential financing difficulties.
What's more, "those who are attracted to the personal control and 'ownership' aspects of President Bush's proposed individual accounts have a more appealing alternative already available: the traditional Individual Retirement Account, or IRA," Kaplan wrote.
His article is titled, "The Security of Social Security Benefits and the President's Proposal."