The state of Social Security is gravely concerning. While Democrats push for free preschool and subsidized child care to be included in entitlement programs, little attention is paid to the fact that Social Security is a financial disaster. In 1935, when President Franklin D. Roosevelt first passed the Social Security Act, one of his primary goals was to create a safety net for senior citizens. During that period, the average person lived to be about 60 years old. As a result, from an actuarial point of view, it was anticipated that participants would not be drawing on Social Security for an exceptionally long period. In addition, approximately 16 workers contributed to Social Security for every person who received welfare benefits. Considering that politicians are fond of emptying the government’s coffers to buy votes, additional amendments to Social Security were enacted to increase participation. This included adding domestic work in 1950 and widows and orphans in 1956. In 1961, they lowered the retirement age to 62, and in 1972, they increased benefits. Then politicians added more recipients, including the disabled, immigrants, farmers, railroad workers, firefighters, ministers, and federal, state, and local government employees. Politicians and voters kept expanding the welfare system while workers’ numbers steadily declined. Today, there are only about two workers for every beneficiary. According to the Social Security Trustees, the Social Security program will be insolvent in 13 years by 2035. The program cannot currently guarantee full benefits to current retirees. By 2034, the Social Security Old-Age and Survivors Insurance (OASI) trust fund will have depleted its reserves. Financially, the Social Security Disability Insurance (SSDI) trust fund is more substantial. But the combined trust fund will run out of money in 2035 when the youngest retirees will be 75, and those who are 54 will be at full retirement age (FRA). All beneficiaries will face a 20% benefit reduction when the program becomes insolvent. The Board of Trustees estimates that Social Security will incur a cash flow deficit of $112 billion in 2022, equivalent to 1.3% of taxable payroll. Social Security deficits will total nearly $2.5 trillion over the next decade, or 0.8% of GDP or 2.1% of taxable payroll. The annual deficit will rise to 3.4% of taxable payroll by 2040 and 4.3% by 2096. It is an insurmountable challenge. Is There a Way to Fix It? Most people believe that a few minor changes, such as raising the retirement age, can solve the long-term funding problem. They couldn’t be further from the truth. What evidence do we have? Despite previous adjustments, welfare programs could not keep up with future projections. In 1977, for instance, Congress enacted a change to the tax formulas to generate more revenue, increasing withholding from 2% to 6.15 %. With this legislation, the Social Security funds will be safe from 1980 to 2030, President Carter said. The financial situation deteriorated rapidly, and the system was again in disarray by the early 1980s. Following an investigation into the long-term solvency of Social Security in 1983, amendments were enacted to raise Social Security taxes and increase the full retirement age (FRA) to 66. Additional Measures Just as Bleak Other methods exist to address the issue of unfunded liabilities. They are, however, equally depressing. Using information from the Medicare and Social Security Trustees’ Reports, Chris Cox, a former chairman of the SEC, and Bill Archer, a former chairman of the House Ways and Means Committee, reported in 2012 that there were about $87 trillion in unfunded liabilities. In addition to the official debt, their measures include unfunded liabilities such as Social Security, Medicare, and federal workers’ pensions. Using the Congressional Budget Office’s alternative long-term budget forecast, economist Laurence Kotlikoff of Boston University calculates a “fiscal gap” of $222 trillion. The fiscal gap is calculated by considering the present value of all future expenditures (including servicing the official debt). It deducts all projected taxes from that amount. With such a scenario, the government would have to invest $87 trillion or $222 trillion right now to meet its future obligations, mainly for entitlement programs, such as Social Security and Medicare. These numbers are much bigger than the official debt number of $16 trillion, even when the $55 trillion estimates from the Treasury for unfunded liabilities are added to make a total of $71 trillion. This money does not become due in the foreseeable future; instead, it functions similarly to a credit card bill that the nation must pay right now. If we don’t make the interest payments, the total amount we owe will keep growing. To solve the problem of our unfunded liabilities, we need to make fundamental changes to the entitlement system and significant cuts to federal spending, according to Veronique de Rugy, Mercatus Center. An Impossible Issue to Solve Another issue is being brought to light due to the retirement of millions of baby boomers. Demographic trends are relatively simple to predict and forecast. However, until 2025, we will see successive waves of boomers reach the 62-year-old mark. As successive generations of baby boomers prepare to retire, we face a dual challenge. To begin with, no generation of boomers has succeeded in creating an adequate number of children to take their place. As a result, fewer people are earning enough money to pay taxes. A new taxpayer can take up to 25 years to mature. The problem of finding suitable employment is the second issue. Excessive debt and declining income growth as a result of productivity increases are to blame for the decline in economic prosperity previously discussed. Another factor that will continue to reduce tax revenues is the shift from manufacturing to a service-based economy.
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