Is There A Crisis?

In 1978, a young candidate for Congress from Texas argued that unless Social Security were privatized, it would be bankrupt within 10 years. He was wrong. After Congress made some minor adjustments in 1983, Social Security made it to 1988 with more than $58 billion in reserves. The Social Security Trust Fund currently holds more than $1.6 trillion in reserves.

Despite his poor economic prognosticating, that young candidate from Texas is now the President of the United States. And he's still using the same faulty premise to make a fundamentally flawed argument.

President Bush and his advisors have said repeatedly over the past several weeks that Social Security is facing a "crisis" and is on its way to bankruptcy. At a recent press conference, the President stated:

"If you have a child who is 25 years old, when that person gets near retirement, the system will be bankrupt."

Once again, President Bush has it wrong. While Social Security may face long-term financing challenges that Congress should address, the President is dramatically overstating the nature of the problem and falsely suggesting that his plan would fix it. Here are the facts:

Social Security is currently taking in more money than it pays out. In all but 11 years since its inception, the Social Security Administration has taken in more in revenue than it has spent on benefit payments. The trust fund currently holds $1.6 trillion in reserves, and that is expected to rise to more than $6 trillion in 20 years.

Social Security has enough money to pay full benefits for 50 years, even if Congress does nothing. The Social Security Administration projects that around 2018, Social Security will pay more money out than it takes in, beginning to draw on the reserves it has been building. (The SSA actually makes 3 different projections. The more optimistic one predicts that Social Security will never have to draw on its reserves. Read more here.) By 2052, if no action is taken, the reserves will be depleted. However, Social Security will still not be bankrupt, because money from payroll taxes will still be coming in. Even after reserves run out, the SSA will still be able to pay 80% of benefits.

President Bush's plan will drastically accelerate the depletion of reserves. By diverting money away from the Trust Fund and into private accounts managed by Wall Street, the President's plan will deplete the Trust Fund by 2024.