Social Security reform key to fiscal health

With the passage of landmark healthcare legislation three weeks ago, the United States took a huge step towards ensuring healthcare coverage for all Americans and reducing the country’s national debt in the long-term. While no bill of such magnitude can be perfect, the legislation is a far cry from what some Tea Party “socialism” alarmists would have you believe. The mere fact that Americans can no longer be denied healthcare coverage based on pre-existing conditions (starting in 2014) is remarkable, and well worth the price of reform.

Unfortunately with such legislation, the costs are much more visible on a daily basis than the benefits. However, I am confident that over time, Americans will come to appreciate many of the reform’s provisions. The Congressional Budget Office (CBO) estimates that the bill will reduce projected budget deficits by $138 billion during its first decade and by nearly $1.2 trillion over the second. While fiscally this is a step in the right direction, additional measures need to be taken in order to put America’s financial house in order and bring down the national debt.

While Republicans have recently taken to grandstanding about the national debt, this problem is one that has resulted from over-exuberant spending on both sides of the aisle. The numbers show that the national debt decreased rapidly during the post-war years until the tenure of the Reagan administration, when the national debt began to increase again to its current level.

The U.S. national debt currently stands at approximately $12.3 trillion (86.1 percent of GDP), and is expected to rise to $18.4 trillion by 2014. Rising national debt leads to more borrowing by the federal government, increasing interest rates over time and ultimately hinders economic growth.

The healthcare reform bill is projected to make reductions to the amount of government spending for Medicare and slow down the projected rise in national debt. With healthcare reform now complete, the federal government must now turn its attention to other areas of government spending in order to rein in the national debt. Social Security looks to be the most promising avenue for achieving this goal.

Last month, the Social Security Administration (SSA) paid out more in benefits than was collected through payroll taxes for the first time in 1983. This tipping point underscores the precarious financial state of the program and its potentially explosive effect on the national debt.

According to CBO estimates the program was not supposed to enter insolvency until 2016, but the financial crisis hastened cash flow out of the program as more Americans availed Social Security benefits. This problem is likely to be exacerbated as the baby boomers reach age of retiement.

Perhaps the simplest way to increase the financial stability of Social Security and solving the national debt problem is to increase the retirement age to 70, which decreases the length of time for which retirees receive Social Security benefits. While it may seem harsh to force older generations to postpone their retirement, few people realize that when FDR signed the Social Security Act into law in 1935, the average life expectancy for an American was only 62 years of age (with 62 being the earliest age for Social Security collection). Today the average life expectancy for an American is 77.7. My generation is being asked to provide longer care for a greater number of people than previous generations.

Former President George W. Bush proposed the partial privatization of Social Security, whereby a percentage of revenue collected by the federal government would go towards private retirement accounts, allowing the funds to grow over time and help pay for the price of the Social Security benefits. However, as we saw, even the Republican Congress was hostile to the idea and little came out of President Bush’s attempt to overhaul Social Security.

The task of reforming Social Security is one that is far less complex than that of reforming healthcare. It still won’t be easy, and it isn’t the only thing that needs to be done to in order to reduce the national debt. However, it is the next most logical step after healthcare reform. Unfortunately, Social Security reform is a political hot-potato that neither side of the political aisle wants to tackle. Nevertheless, it is crucial that reforms be passed soon before it becomes too late and America is burdened with a more crushing national debt.