Economist says Social Security system not on verge of collapse

Baby Boomers, don't worry. Social Security will be there for you when you retire.

So proclaimed Dean Baker, an economist and national authority on Social Security, to a group of union members at a breakfast sponsored by the Northwest Oregon Labor Council.

"It's almost an illogical impossibility" that the system will collapse, he said. "What's the government going to do, tell 60 to 80 million people ... 'sorry, we don't have the money to pay you' ...?"

Baker, co-director of the Center for Economic and Policy Research in Washington, D.C., and author of a new book "Social Security: The Phony Crisis," was in Portland Feb. 10-11 to discuss the health and future of America's Social Security system.

Polls show that strengthening Social Security is at the top of union members' priorities for congressional and presidential action, but those same polls also show the public's faith in the program is weak.

"It's not about to go under," Baker said.

In fact, the most cautious estimates by Social Security actuaries, Baker said, show that the program will continue to pay out 100 percent of promised benefits through 2034, and 74 percent of benefits thereafter - even with no changes.

But because of changing demographics and assumptions about the economy's future, trustees estimate that payroll contributions from workers and their employers will fall short of the benefits to be paid unless some modest changes are made to strengthen the program.

Baker offered a couple of suggestions - such as a small increase in the employer and employee-paid tax, or elimination of the cap on income (currently anyone making over $72,600 a year doesn't pay Social Security tax on money earned over that amount).

He said the projected shortfall also was based on "extremely pessimistic" economic assumptions that annual growth will average just 1.8 percent over the next 20 years. "In the last 75 years - and this includes the Great Depression - the economy grew an average of 3 percent a year. If the economy grew the same as it did the past 75 years the Social Security fund will be almost solvent for the next 60 years," he said.

Right now Social Security is collecting more than it is spending and placing the money in reserves for the time when the baby-boomers retire and collections are less than expenditures. These extra collections make up 98 percent of today's so-called "budget surplus."

Baker explained that the surplus money is lent to the U.S. Treasury when the Social Security Trust Fund buys bonds from it.

"The money is then used to finance the federal deficit, just like any other money the government borrows." he said. "The bonds held by the fund pay the same interest rates as bonds held by the public. These bonds are every bit as real as bonds held by banks, corporations and individuals. "Throughout U.S. history the federal government has always paid its debts."

As for Wall Street wanting to eliminate the program entirely so that it can sell individual retirement accounts, Baker responded: "The financial industry has done the math," he said, "and they see administrative fees reaching $60 billion a year."

Currently, administrative costs for Social Security pencil out to about seven-tenths of one percent, Baker said. Administrative costs in a private system, such as the one in Chile, run 15 percent. Baker said the American public really couldn't ask more from a government program.

"Social Security is doing exactly what it was intended to do," he said. "It's not a luxury; but it's money that citizens can count on when they retire."