Back
Bush on Social Security Reform
Monthly Benefits Compared, All Scenarios
Simcivic Analysis of Bush and Kerry Strategies
Simcivic Home Page
Common Sense on Social Security

Mr. Kerry's platform on Social Security (see below) defends the program from Republican proposals for change, but it does a poor job of explaining why Social Security is headed for insolvency, and it barely scratches the surface on what's needed to protect the program over the long haul. In broad direction, it seems workable, but many questions remain.

1. THE PROBLEM IS NOT EXPLAINED.  The numbers are daunting, and Kerry should repeat them so that everyone can understand just how serious the challenge is. In 2005, about 37 million Americans will be 65 years old or older. By 2035, that total is expected to double, to 74 million.

Over the same time period, 2005 to 2035, the total number of Americans of working age, 20 to 64, is expected to rise from 181 million to 203 million. 37 million more elderly, only 22 million more Americans of working age. One hundred percent more elderly, twelve percent more working people. A financing system that's affordable now won't be affordable once the Baby Boomers all reach retirement age. Kerry should lay the facts out. That he doesn't is a source of worry.

2. THE CONSEQUENCES ARE DISTORTED.  Kerry suggests that Social Security is "solvent" until 2042. That's technically true, but a distortion of what's at stake. Social Security turns cash negative much earlier than 2042, perhaps as early as 2018 should Social Security's slow growth forecast turn out to be accurate. Once it turns cash negative, what happens?

First, the Treasury pays cash interest on the debt it owes to Social Security. If the Federal Government is already running a deficit, its deficit must grow in order to cover the interest due to Social Security. And these interest payments won't suffice for all that long. As Social Security's cash negative position worsens, they'll soon be inadequate.

So, second, the Treasury must buy back from Social Security all the special bonds it has sold to Social Security's Trust Fund over the years. Cash payments from the Federal Government's general account to Social Security will rise and rise as Social Security sells off more and more of its Trust Fund assets.

Finally, once Social Security has sold all the Treasury bonds it owns back to the Treasury, Social Security will, officially, be insolvent.

To suggest, as Kerry's website does, that the problem doesn't really come due until 2042 ignores the painful reality that Social Security's receipts will be unable to cover benefits as early as 2020 or before.

3. KERRY'S APPROACH IS WORKABLE, BUT HE'S TOO VAGUE ON GOALS.   Kerry calls for faster growth. Our simulation analysis shows a significant boost in benefits for future retirees in a faster growth economy. In a slow growth economy, monthly benefits in a solvent system would inch up to $1,348 per month by 2075. In a faster growth economy, they could rise to $2,576 (2003 dollars). That's an enormous difference. Kerry's right to stress faster growth.

He's also right to call for fiscal discipline. And his call for a bipartisan process also makes sense, though a properly-designed bipartisan process would pick a consensus target, then fairly examine ALL options for reaching the target before deciding which is the best. Would a President Kerry allow all options onto the table? He should.

What's missing from his strategy is a clear statement that commits America to a path of lasting solvency for Social Security. Today's system was patched together in 1983. It grows assets for three or four decades, then sell them off for the next two decades. If that sounds weird, it is. It's an asset depletion approach to solvency, and it's as wrong-headed now as it was in 1983.

If Kerry believes a lasting solution is a good idea, he should say so. He should commit himself to an asset preservation strategy for Social Security solvency. As of now, no one can tell whether Kerry has learned from the errors of the 1983 reform, or whether he'd be content to repeat the same errors, stall the problem further, and leave Social Security still at risk.

Steven H. Johnson
Simcivic.org
September 2004

A Plan to Strengthen Social Security

• Social Security Is A Lifeline For America's Seniors. 45 million Americans count on Social Security. Social Security represents 38 percent of the income of the elderly and lifts tens of millions of seniors above the poverty line. Currently, the poverty rate for seniors is 10.4 percent. Without Social Security it would be about 50 percent.

Issues to Examine

1) Most histories of Social Security credit the program with lowering the poverty rate for the elderly from a percentage in the low thirties.

• Social Security Faces Challenges - But They Are Manageable. Under current law, Social Security is projected to be solvent through 2042. Current law revenues would be sufficient to pay 73 percent of scheduled benefits after trust fund exhaustion in 2042.

2) This statement omits two vital facts. Social Security turns cash negative two decades before 2042. The retiree population doubles over the next 30 years, the working population grows only a small amount. Kerry isn't leveling with Americans about the problem.

• The Three Pillars Of John Kerry's Approach To Strengthening Social Security:
  • Grow the economy. The Kerry-Edwards plan will jump-start growth today and invest in stronger long-run growth. A larger economy will be in a better position to pay for an increasing number of retirees.
  • Restore fiscal discipline. Social Security is part of the broader fiscal challenge facing America. The Kerry-Edwards plan will cut the deficit in half and restore fiscal discipline to Washington.
  • Bipartisan Process. Historically, successful reforms of Social Security and Medicare - like in 1983 and 1997 - have been accomplished on a bipartisan basis. As president, John Kerry will build on his strong record of working with Democrats and Republicans on fiscal issues to address Social Security's challenge.

3) Faster growth would be a big boost to Social Security's long-run health. Does Kerry have a realistic strategy for faster growth?

4) The 1983 reform averted immediate insolvency but failed to ensure Social Security's lasting financial health. It's a stretch to call it a "success."

• John Kerry Will Never Balance The Budget On The Backs Of America's Seniors. As president, John Kerry will not raise Social Security taxes, raise the retirement age, cut benefits for people that rely on Social Security, or privatize Social Security. He will consider making sure that high-income beneficiaries don't get more out than they pay in.

5) This says nothing about what Kerry would do to protect Social Security's long-run solvency.

Revision Date 2004-09-02