WASHINGTON (AP) — As Social Security approaches its 80th anniversary Friday, demographic changes cast a cloud over the long-term future of the U.S. pension program.
Relatively modest changes to taxes and benefits could still save it for generations of Americans to come, but Congress must act quickly, and even limited changes are politically difficult.
Over the past 20 years, the fund's balances have gotten out of whack. Social Security's long-term financial problems have been driven by demographic changes.
As the so-called baby boomer generation swells the ranks of retirees, relatively fewer workers are left to pay taxes. In 1960, there were more than five workers for every person receiving Social Security. Today there are fewer than three. In 20 years, there will be about two workers for every person getting benefits.
Lawmakers from both political parties would like to resolve the issue this year, protecting beneficiaries from steep cuts before presidential politics comes into play in 2016, when President Barack Obama's successor is chosen.
But a deal remains elusive. And the longer lawmakers wait, the harder it will become to maintain Social Security as a program that pays for itself through payroll taxes, a key feature since President Franklin Roosevelt signed the Social Security Act on Aug. 14, 1935.
"The more time that they take, the less acceptable the changes will be because there needs to be adequate time for the public to prepare and to adjust to whatever changes Congress will make,'' Carolyn Colvin, acting commissioner of the Social Security Administration, said in an interview.
The options fall into broad categories: benefit cuts, tax increases or a combination of both.
None is popular, and policymakers are moving in opposite directions.
There is an easy fix available, but Republicans in Congress are resisting.
Republican lawmakers see the funding crisis as an opportunity to improve a program that they believe is plagued by waste and abuse. Democrats are much more defensive about the program, noting that its modest benefits keep millions of disabled workers and their families out of poverty.
Republicans say they want changes in the disability program to reduce fraud and to encourage disabled workers to re-enter the workforce. Democrats say they too want to reduce fraud and to encourage disabled workers who can work to re-enter the workforce. But they accuse Republicans of manufacturing a crisis by refusing to redirect tax revenue between the trust funds.
Washington's gridlock over the issue has increased the likelihood that it will deal with Social Security the same way it has so many other issues — not until it becomes a crisis.
The poverty rate among those 65 and older has inched up in recent years. But it still is significantly lower than the poverty rate for younger age groups, in large part because of Social Security.
The average monthly payment is US$1,221. That comes to about US$14,700 a year.
Nearly 60 million American retirees, disabled workers, spouses and children get monthly Social Security payments, a number that is projected to grow to 90 million over the next two decades. About 168 million workers pay Social Security taxes.
By law, the tax revenue is divided between the disability trust fund and Social Security's much larger retirement fund. Social Security's trustees say the disability trust fund will run out of money in late 2016. That would trigger an automatic 19 per cent cut in benefits.
Obama and other Democrats want to redirect tax revenue from the much bigger retirement fund to the disability fund, as Congress has done in the past. But Republicans say that would be like robbing the elderly to pay the disabled.
If the two funds were combined, they would have enough money to pay full benefits for both programs until 2034, according to the trustees.
But long before then, Social Security's long-term financial problems could become too big to solve without painful remedies or excessive borrowing.