Washington D.C. has been telling America for years that the Social Security system is headed to inexorable demographic doom. Typically, though, the estimates have been far enough into the future for present politicians to safely ignore what has been called “the third rail of American politics.”
That illusion of safety in distance from the event was shattered Wednesday, as trustees of the Social Security disability trust fund reported that the program will be insolvent next year. The retirement fund will make it longer – until 2035, according to the trustees – but calls are already emerging for congress to take action to prevent the bankruptcy of the disability portion of the Social Security programs.
Of course, congress’ actions are limited. They can either raise taxes which is never a winner in an election year, they can borrow money from the retirement fund, they can take on more debt, or they can cut the programs. All of these options are bad for individual politicians who have to answer to voters, and the temptation to simply take on more debt and allow the Federal Reserve to Quanititatively Ease our way out of the immediate emergency is surely powerful.
President Obama advocates a different path of little resistance, that of raiding the retirement fund to prop up the disability fund. “The president has proposed a common-sense solution to improve the solvency of this fund in the short run so that Americans who rely on it will continue to receive the benefits they need,” Treasury Secretary Jacob Lew said.
Meanwhile, the two houses of congress are fighting over proposed highway funding bills that advocate taking that same Social Security money. There is no clear indication of how many programs that are not Social Security the Social Security funds are actually expected to finance.
Currently, 11 million Americans receive Social Security disability benefits to the tune of $1,017 per beneficiary per month. Insolvency triggers an automatic 19% cut in benefits. In a rational world, insolvency would end the program entirely. Regrettably, our politicians left rationality far behind.
Untrammeled entitlement spending is a huge part of the financial meltdown currently ongoing in Greece, and the US would do well to learn some lessons from the Greek situation. The population stopped working, government programs paid them to do so, Greece borrowed money to fund its unsustainable programs, and eventually ran out of other people’s money.
Some parallels are evident in America’s current economic situation. Since Obama’s election in 2008, home ownership has declined across all demographics, childhood poverty has jumped from 18% to 22%, dependence payouts have doubled to $74 billion annually, the national debt has doubled to $18 trillion, the median household income has declined almost $3,000 annually, and 17% of the middle class fell out of the middle class. In short, we’re earning less, owning less, working less, borrowing more, and living more off the government. Too bad we don’t have an oppressive Euro Zone to blame.
Another huge similarity between the US and Greek situations is immigration. In America, illegal immigration across a porous border leads to pockets of mostly Mexican illegals associated with lower employment, higher rates of violent crime, and increased drug use. In Greece, illegal immigration across a porous border leads to pockets of mostly Islamic illegals associated with lower employment, higher rates of violent crime, and increased drug use. In both countries, the influx of illegals also strained the government entitlement systems, leading to more borrowing and, in the case of the USA, more taking from Social Security.
It’s hard to see the Social Security crisis as the tipping point for the American economy entering a Greece-like death spiral. After all, Greece has a debt-to-GDP ratio over 200%, while America’s is only at 104%, about the same as Cyprus when Cyprus… entered a Greece-like death spiral.
Clearly, the country must make some difficult changes in how it approaches Social Security. A great first step would be to stop raiding the funds for whatever harebrained scheme needs a few bucks. Another good idea is to crack down on fraud, which cost the program $14 billion over the last decade according to one study.
Whatever is done, kicking the can down the road and letting the next person deal with the problem is not going to make it easier. It’s just going to make it less painful for the Obama administration and the present congress.