Government Takeover of Retirement Assets

75 Years of Social Security

August 15, 2010

Miami Herald - Seventy-five years before the current Great Recession, America was at its most memorable economic low point. The unemployment rate was 25 percent. Only about 5 percent of the retired had pensions. People had begun living longer and didn't have income or savings to support themselves as they aged.

On Aug. 14, 1935, President Franklin Roosevelt signed the bill that created Social Security, and the first benefits, in lump sum payments, were given out two years later.

Now, Social Security pumps billions into the Florida economy each month, with an average payment of about $1,170 a month for retired workers here.

In Florida alone, more than 2.5 million people draw Social Security retired worker benefits, including nearly 200,000 seniors in Broward and more than 250,000 in Miami-Dade.

For seniors already drawing Social Security, including many in South Florida, the program is satisfactory.

Some 3.7 million Floridians -- or almost one in every five people in the Sunshine State -- draw some kind of Social Security benefit, whether they are retired workers, children, spouses, widows or widowers of those workers, or collect Social Security disability payments.

But their children and grandchildren don't feel so secure that they will reap benefits in the future.

In their most recent report, Social Security's trustees said for the first time since 1983, the program is doling out more in benefits than it is collecting from workers' paychecks. Benefits won't grow next year.

The trust fund that supports the program will be exhausted in 2037 if something isn't changed, said Lori Parham, director of AARP in Florida.

"That would not mean the end of Social Security,'' Parham said.

But it would mean workers from then on would only receive about 75 percent of their projected Social Security payments through 2084, when the money would be gone.

When more money was going out than coming in the last time, it triggered the adjustment of the retirement age to collect full benefits -- from 65 to 66, and from 66 to 67 in 2027.

Whether Congress will act on the latest news remains to be seen.

Social Security Cuts Weighed by Panel

August 20, 2010

Wall Street Journal - A White House-created commission is considering proposals to raise the retirement age and take other steps to shore up the finances of Social Security, prompting key players to prepare for a major battle over the program's future.

The panel is looking for a mix of ideas that could win support from both parties, including concessions from liberals who traditionally oppose benefit cuts and from Republicans who generally oppose higher taxes, according to one member of the commission and several people familiar with its deliberations.

In addition to raising the retirement age, which is now set to reach age 67 in 2027, specific cuts under consideration include lowering benefits for wealthier retires and trimming annual cost-of-living increases, perhaps only for wealthier retirees, people familiar with the talks said.

Ideas for shoring up Social Security:

Raise the retirement age.
Reduce the rate at which benefits grow each year.
Reduce benefits for wealthier retirees.
Subject a greater portion of income to Social Security tax.
Raise the Social Security payroll tax, now 6.2% for employer and employee.

On the tax side, the leading idea is to increase the share of earned income that is subject to Social Security taxes, officials said. Under current law, income beyond $106,000 is exempt. Another idea is to increase the tax rate itself, said a Democrat on the commission.

Even before the commission settles on a plan, many liberals are vowing to block any cut in retirement benefits. But the White House and the powerful senior group AARP appear open to a deal.

Republicans on the commission have mostly held their fire. One of them, Rep. Jeb Hensarling (R., Texas) said Thursday he opposes tax increases but wouldn't rule anything out at this stage in the discussions. Otherwise, he said, "the thing blows up before it has a chance to work."

The commission's Social Security proposals would face an uncertain reception in Congress, which would have to approve changes to the program. But some commissioners were optimistic.

"Are Republicans willing to sign onto a tax increase, and are Democrats ready to sign onto a benefit cut? I think the answer is probably yes in both cases if the other is willing to do it," said Alice Rivlin, a Democrat and former White House budget director.

Some have suggested raising the retirement age to as high as 70, but Ms. Rivlin said she doubts there is support on the commission to go that high.

Some in the White House view a deal on Social Security as a confidence-building measure that could prepare the political system to tackle even tougher fiscal questions, such as the federal government's budget deficit. Asked about Social Security on Wednesday, President Barack Obama hinted of coming changes, saying:

"We're going to have to make some modest adjustments in order to strengthen it."

The 18-member National Commission on Fiscal Responsibility and Reform is charged with generating solutions to address medium- and long-term fiscal problems. To be endorsed by the panel, an idea must garner 14 votes.

The commission includes 12 members of Congress, six Democrats and six Republicans appointed by congressional leaders, plus four non-lawmakers chosen by the White House. The White House also appointed the co-chairmen, Democrat Erskine Bowles, a former White House chief of staff, and Alan Simpson, a retired GOP senator. The group is to issue its report by Dec. 1.

The Congressional Budget Office underscored the challenge Thursday, forecasting that the federal government's budget deficit for this fiscal year would total $1.34 trillion. That is slightly less than previous projections as a result of lower-than-expected spending on the Troubled Asset Relief Program financial rescue. The deficit will fall to just over $1 trillion in 2011, due to lower stimulus spending, the office said. But the deficit would grow if Congress extended the Bush tax cuts.

Social Security officials project that beginning in 2014, the program will routinely pay out more in benefits than it collects in taxes, requiring it to draw on reserves that have been funding the rest of the government. By 2037, the reserves would be depleted and the program would only be able to pay about 75% of promised benefits.

The U.S. is facing the same demographic trends that are at play in most other parts of the world: life expectancies have lengthened while fertility rates have fallen, leaving countries with a shrinking proportion of young workers to help support elderly residents.

The problem is particularly acute in Europe. Germany raised its retirement age by two years, to age 67. In France, President Nicolas Sarkozy has proposed raising the retirement age to 62, up two years. According to the World Bank, Hungary has raised its retirement age, while Poland has moved to reduce incentives for early retirement, and other nations have changed the way benefits are calculated.

In the U.S., this election year's political debate on Social Security has been dominated by Democratic attacks on Republicans who support individual private accounts that could be invested in stocks, an idea that President George W. Bush pushed unsuccessfully in 2005. But many predict any 2011 debate on Social Security will focus on the issue of benefit cuts and tax increases.

Liberal Democrats are already organizing to head off any proposal that cuts Social Security benefits, including any plan to raise the retirement age. They argue the program's finances can be fixed with tax increases alone and that benefit cuts would harm low-income seniors who have little savings.

"People would rather pay more or have revenue raised than cut the benefits," said Rep. Jan Schakowsky (D., Ill.), a commission member.

She said she was fairly confident a proposal that included benefit cuts would not garner the needed 14 votes.

Many liberals are particularly opposed to any plan that would link cuts in Social Security to deficit reduction. They say that because the retirement program has long run a surplus, it is not to blame for the budget deficit. The commission's mandate is to examine ways to balance the budget and to address the growth of entitlement programs.

Outside the commission, Moveon.org, the Campaign for America's Future and other liberal groups are pressuring candidates for Congress to promise not to support benefit cuts, posting name-by-name results on a website. A coalition of 125 groups, called Strengthen Social Security, calls for closing the shortfall with tax increases alone. But others are open to the conversation, including the powerful senior group AARP.

"We're prepared to be quite supportive of a real engagement on the issue," said John Rother, director of public policy for AARP. Acting sooner allows for changes to be made gradually, he said, and will reassure younger workers that the program will be there for them. He dismisses those who said they can never support benefit cuts. "I know all these people personally and they'll say we have to be hard line now to influence the debate...I kind of take it with a grain of salt, these emphatic statements."