Economy Delays Crisis in Social Security to 2032

The booming national economy has added three years of financial health to the Social Security system and delayed until 2032 the projected date when it will be unable to pay full benefits to the elderly and disabled, the government said Tuesday in its annual report on the system’s future.

And the Medicare hospital fund’s crisis date has been postponed until 2008, a gain of seven years, the report says, thanks in large measure to legislation enacted last year.

The good news for the two massive federal programs is a mixed blessing for elected officials who are trying to focus public attention on the need for changes in both programs to manage the influx of millions of baby boomers who will be claiming benefits in the next century.

Their message: Don’t let Tuesday’s positive report lull you into complacency. Worry about the future.

“These modest improvements only underscore the fundamental challenge we face,” President Clinton said at a White House news conference.

Senate Majority Leader Trent Lott (R-Miss.) said: “I think the American people understand we need to take action. . . . The best thing to do for the next generation would be to act sooner, not later.”

The nation’s 44 million Social Security beneficiaries face no imminent financial threat. The system has been building reserves for many years and will continue to do so until 2013, according to Tuesday’s report by the system’s trustees.

Not until 2032, the trustees estimated, will the retirement fund exhaust its reserves and be able to pay benefits equal only to the payroll tax revenue it collects that year. That tax revenue would cover only about 75% of the benefits promised under current law.

The critical date shifted from 2029 to 2032 “almost entirely due to strength in the U.S. economy,” Social Security Commissioner Kenneth S. Apfel said.

More Americans Paying Into System

Compared with expectations last year, more Americans are working and paying taxes into the Social Security system. More than that, lower inflation is resulting in a smaller annual cost-of-living increase in benefits. This year’s raise of 2.1% was the smallest in 10 years.

Medicare’s hospital trust fund was strengthened through bipartisan legislation approved last year that provided for reductions in government payments to doctors, hospitals and health maintenance organizations and for some increases in payments by beneficiaries.

These changes had been expected to extend the life span of the fund. But the precise number of years of added solvency--seven--was not certified until Tuesday with the issuance of the annual report by the system’s six trustees--three Cabinet officers, the commissioner of Social Security and two representatives of the public.

Social Security and Medicare will be squeezed financially when the 76 million baby boomers--Americans born in the years 1946 through 1965--begin reaching retirement age. The number of persons 65 and older, now 34 million, or 13% of the population, is projected to reach 70 million, or 20% of all Americans, by 2030.

Clinton has not offered a Social Security plan. Instead, under the slogan, “Save Social Security First,” he has urged Congress to set the budget surplus aside for Social Security--rather than use it to cut taxes--until it can enact a plan guaranteeing Social Security’s soundness indefinitely.

Under his plan, a White House conference on Social Security would take place in December--after this year’s congressional elections. And in January, he said Tuesday, “we’re going to meet with the leaders of both parties in Congress and I’m going to do my best to hammer out a plan which then will be a centerpiece of what I recommend to the American people and the Congress.”

Republicans are calling for the use of budget surpluses to allow individuals to open retirement accounts under their own control. This could be a precursor to allowing workers to invest some of their Social Security payroll taxes in stocks or other securities.

Many Republicans--still smarting over what they call Clinton’s “Medi-scare” campaign for reelection in 1996--seem fearful that Democrats will exploit both Medicare and Social Security as political issues to attack the GOP in the coming election campaign.

And that, at least in part, may be what is driving the Republican-controlled House to take up legislation today to create a bipartisan commission to recommend long-term changes in Social Security.

Bipartisan Calls Signal Partisan Fears

On both sides, the call for bipartisan cooperation is typically an early warning signal that an issue has the potential for great partisan volatility.

“We will strengthen Social Security only if we reach across lines of party philosophy and generation, as we did when we drafted last year’s balanced budget,” Clinton said Tuesday. “And if we make this year a year of education on Social Security, I’m confident we will come together to take the necessary steps next year.”

House Majority Leader Dick Armey (R-Texas) said that he hopes for “a real, sober, professional policy discussion . . . rather than have it degenerate into another round of cheap demagoguery in the campaign season.”

And House Ways and Means Committee Chairman Bill Archer (R-Texas), the architect of the commission idea, said: “We must put the nation first and we must rise above partisan politics.”

Members of Congress have introduced a variety of Social Security reform plans. Sen. Judd Gregg of New Hampshire, who heads a Republican task force on the issue, wants to allow workers to put one percentage point of the 12.4% payroll tax into individual accounts.

Sen. Daniel Patrick Moynihan (D-N.Y.) wants to cut the payroll tax by 2 percentage points and allow workers to choose between increasing their take-home pay and placing the money in personal retirement accounts.

Times staff writers Edwin Chen and Janet Hook contributed to this story.

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Social Security

The Clinton administration announced that the Social Security trust fund will be solvent until 2032, three years later than earlier estimates.

‘32: $0 assets

Source: Social Security Administration