I stumbled across an interesting article in American Thinker about the dilemmas with social security. It led me to a Congressional Budget Office analysis of the sufficiency of the funding for Social Security and the options for fixing the problem before the fund runs short.
The good news was there are indeed options to fix the Social Security problem—the bad news is we need for Congress and the President to pick one by 2016 when CBO estimates the Social Security fund will persistently pay out more than it takes in as we baby boomers retire.
“In calendar year 2010, Social Security’s outlays will exceed tax revenues (that is, the trust funds’ receipts excluding interest) for the first time since the enactment of the Social Security Amendments of 1983. Over the next few years, the Congressional Budget Office (CBO) projects, the program’s tax revenues will be approximately equal to its outlays.
However, as more of the baby-boom generation (that is, people born between 1946 and 1964) enters retirement, outlays will increase relative to the size of the economy, whereas tax revenues will remain at an almost constant share of the economy.
Starting in 2016, CBO projects, outlays as scheduled under current law will regularly exceed
tax revenues. CBO projects that the DI trust fund will be exhausted in 2018 and that the OASI trust fund will be exhausted in 2042. Once a trust fund’s balance has fallen to zero and current revenues are insufficient to cover the benefits that are specified in law, a program will be unable to pay full benefits without changes in law.” —CBO 2010 Analysis of Social Security
So it turns out there are options to close the revenue gap for Social Security payments and some options are more onerous than others. The options chart above from that American Thinker article suggests that the fastest, easiest fix would be to index Social Security payments to prices rather than prices and earnings growth. Like the article I thought that was how Social Security worked anyway.