Social Security is
$13 Trillion Short

A Treasury Department report finds serious shortfall, urges reforms;
White House voices opposition to tax increases

AP 24sep2007

WASHINGTON — The Bush administration said in a new report Monday that Social Security is facing a $13.6 trillion shortfall and that delaying needed reforms is not fair to younger workers.

A report issued by the Treasury Department said that some combination of benefit cuts and tax increases will need to be considered to permanently fix the funding shortfall. But White House officials stressed that President Bush remains opposed to raising taxes.

The Treasury report put the cost of the gap between what Social Security is expected to need to pay out in benefits and what it will raise in payroll taxes in coming years at $13.6 trillion.

It said delaying necessary changes reduces the number of people available to share in the burden of those changes and is unfair to younger workers. "Not taking action is thus unfair to future generations. This is a significant cost of delay," the report said.

In another key finding, the report said: "Social Security can be made permanently solvent only by reducing the present value of scheduled benefits and/or increasing the present value of scheduled tax increases."

The paper went on to say: "Other changes to the program might be desirable, but only these changes can restore solvency permanently."

While the language of the Treasury report seemed to indicate that the administration would consider raising taxes along with reducing benefits as a way to deal with the funding shortfall, the White House was quick to reject that possibility.

"The president is not advocating for tax increases or benefit cuts," said White House spokesman Tony Fratto.

"Everyone understands that the choices available in the current structure of Social Security, that absent reform, tax increases and benefit cuts are inevitable," Fratto said. "That's why the president believes it makes more sense to reform the program sooner than later."

Treasury Secretary Henry Paulson, Bush's point person on Social Security reform, said he has had a number of discussions with members of Congress from both parties over the issue of fixing the problems in Social Security with the looming retirement of 78 million baby boomers.

"While differences over personal accounts and taxes dominate the public debate over this issue, in my conversations I found that there are many other things on which people agree," Paulson said in a statement accompanying the issues report.

"By focusing on areas of agreement, I hope these issue briefs will narrow the divide and spur further discussion of reforms," Paulson said.

Bush had hoped to make Social Security reform the top domestic priority of his second term. Bush put forward a Social Security reform plan in 2005 that focused on creation of private accounts for younger workers but that proposal never came up for a vote in Congress, with Democrats heavily opposed and few Republicans embracing the idea.

While Democrats have fought to protect current benefit levels, Republicans have been adamant that taxes should not be raised to cover the Social Security shortfall.

Phil Swaigel, Treasury's assistant secretary for economic policy, told reporters that the plan was to issue about six issue briefs on Social Security over the next three months. But he said it was "unclear" at the moment whether the papers would lead to a new push to get an overhaul program through Congress next year.

Many believe such an effort would be highly unlikely to gain success in 2008, a presidential election year when one-third of the Senate and all House members will also be facing re-election.

Paulson, however, has said even if he is not able to achieve an agreement during the short time the current administration will be in office, he hopes to lay the groundwork for the next administration and a new Congress to tackle the problem.

source: 24sep2007

Treasury Wants Early Social Security Reform,
But Cannot Say When It's Possible

PETE KASPEROWICZ / Thomson Financial News 24sep2007

WASHINGTON — The US Treasury Department today renewed its pitch for ensuring the solvency of the Social Security program as quickly as possible, since early changes to the program would spread the costs of reform across more generations.

However, a senior Treasury official said it is unclear whether the Bush Administration will try to use 2008 — its last year in office — to press for needed reforms, or whether it would continue to collect ideas that a future administration would be left to pursue.

Treasury Secretary Henry Paulson said today that his intention so far is to contribute to the debate with a series of 'issue briefs' on the subject, in the hope that a solution can be found in a field chock full of disagreement over how to fix the problem. Congressional Democrats, for example, disagree with the Bush administration's idea of allowing workers to fund their own retirement, while many Republicans are against the idea of raising taxes to cover Social Security shortfalls.

'While differences over personal accounts and taxes dominate the public debate over this issue, in my conversations I found that there are many other things on which people agree,' Paulson said today. 'By focusing first on areas of agreement, I hope these issue briefs will narrow the divide and spur further discussions of reform.'

Treasury outlined the scope of the problems facing Social Security today in its first issue brief. Assistant Treasury Secretary for Economic Policy Phillip Swagel told reporters that the Treasury is expected to release six additional issue briefs over the next three months, and said the next report would examine possible frameworks for reform.

But Swagel agreed it is 'uncertain' whether the administration could be in a position to begin advocating for a specific solution next year, and said this would depend on how quickly the two sides can reach agreement.

The report released today pressed for reform as quickly as possible in light of the expected funding shortfalls the program will face in the coming decades.

'Delay reduces the options for distributing the financial burden of reform across generations because delay exempts additional generations from sharing in the financial consequences of reform,' it said. 'Not taking action is thus unfair to future generations. This is a significant cost of delay.'

The report said 49 mln people are now covered by Social Security, and that 2007 benefits were worth 576 bln usd, or 20 pct of the federal budget. It predicted that Social Security will have 'insufficient funds' to pay currently scheduled benefits starting in 2041.

It also estimated that the current Social Security surplus, expected to peak at 99 bln usd in 2009, will become a deficit in 2017 without changes.

'As a result, Social Security will have a larger and larger impact on the rest of the federal budget, as general revenues and/or greater public debt issuance are needed in order to redeem trust fund bond holdings and fund full benefit payments until 2041,' it said.

The report added that over an indefinite timeline, Social Security faces a 13.6 trln usd shortfall, since early recipients of the program paid far less into the system than they received. Social Security is funded largely through current-year tax receipts.

While Treasury said its issue briefs are meant to outline the problem in a way that does not favor certain solutions, today's paper did give a nod to the idea of funding retirement through private accounts.

'As is well known, the program promises current and future workers a below-market rate of return on contributions in the sense that most workers would do better by directly investing their contributions into US Treasury bonds,' it said.

It also warned that Social Security can only be saved by reducing the value of scheduled benefits, and/or increasing tax revenue.

'By itself, faster economic growth will not solve Social Security's financial imbalance — realistically, there is no way to 'grow out of the problem,'' it said. However, it also added that economic growth and higher real wages can make reforms easier to bear.

source: 24sep2007