Bloomberg Op-Ed: The Future of Social Security Isn’t Doomed
There have been many worries about the future of Social Security in the United States, but Bloomberg’s Tyler Cowen thinks most of those fears are unfounded.
In a recent piece, Cowen points to one of his colleagues, Charles Blahous at George Mason University, who Cowen calls a “relative pessimist (some would say alarmist).”
Blahous estimates that, while the program will not be able to make its scheduled payments sometime in the 2030s if nothing is changed, it will still be “paying out a roughly constant level of inflation-adjusted benefits over time.” Per Bloomberg:
“Another way to describe the problem is that, over the next 75 years, about 17% of scheduled benefits are currently unfinanced. Blahous estimates that the U.S. could cover that gap if the Social Security payroll tax were raised from 12.4% to 15.1%,” Cowen writes.
While Cowen does acknowledge the dangers of a tax hike like this, he does think it’s “a very different reality than a bankrupt system.” He argues that if Social Security was on cruise control, meaning no planned reforms like ones being proposed by both House Democrats and Republican Sen. Mitt Romney, “today’s younger earners still are slated to receive more than their parents did.”
But Cowen isn’t completely lacking fear. He’s not a huge fan of idea that a depleted Social Security trust fund means the program would have to be funded by government revenues. He thinks that approach “could destroy the perception of Social Security as a system where contributions are related to final payments.”
“The real damage there is that the U.S. Treasury would be raided for ever-larger benefit increases for the elderly, unconnected to people’s earlier taxable wages and contributions,” Cowen argues. “This would be a bad outcome, but it is pretty much the opposite of the fear that benefits will disappear.”
Baby boomers have generated a lot of wealth, and Cowen sees that wealth eventually falling into the hands of the younger generations through “an unprecedented series of significant bequests, including charitable bequests.”
He also sees a future with more and more innovations and services targeted toward the elderly as the U.S. population’s average age rises. Millennials and Gen X-ers will be living in a world “built for the elderly.” And a larger pool of active voters from those generations could enact favorable policy change.
And while Cowen admits he doesn’t think everything will be totally fine in the future, he’s only trying to end the “claim that post-boomer generations will be left holding the bag, through a bankrupt Social Security system.”
Editor’s note: Do you think the future of Social Security is doomed? If so, do you have a backup plan? Post your thoughts in the comments below.
• You can find all of the latest and most important news about Social Security here on Money and Markets.