In early 2005 President Bush mounted a 60-day, 60-stop public relations blitz. Its goal? To convince the public that Social Security is headed for bankruptcy and that immediate reforms were essential. He warned that tides of baby-boomers headed for retirement would cause an economic tsunami, and he advocated privatized investment accounts. The response from Capitol Hill was “Social Security funds are not in crisis. Claims that they are rely on unrealistic predictions about future economic conditions.” During Bush’s 2006 State of the Union address, Congressional Democrats wildly cheered their own obstructionism in blocking the reform effort.
The Trustees of the Social Security Administration are now telling us they are in a dire situation and will start running in the red in 2016. According to The New York Times, “The report shows Medicare has become more fragile as well and is at greater risk than Social Security of imminent fiscal collapse. Starting eight years from now the health insurance program will be unable to pay its hospital bills.”
This is a trillion dollar crisis. Without entitlement reform tax rates will have to be doubled. There was a serious effort to reform Social Security and Medicare in 2005 and 2006 and reports of impending insolvency of both programs have been made numerous times. The situation is now far worse.
In 2006, Senator Harry Reid (R-NV), the current Majority Leader, said:
“The so-called Social Security crisis exists in only one place — the minds of Republicans. In reality, the program is on solid ground for decades to come.” Reid had been responding to Bush’s warning:
“If we do not act now to avert that outcome, the only solutions would be dramatically higher taxes, massive new borrowing, or sudden and severe cuts in Social Security benefits or other government programs.” The Bush plan would have allowed people the option to manage 18 percent (one of six dollars) of their Social Security as an IRA (Individual Retirement Account) providing individuals the option of their investments, including stocks, bonds, mutual funds, gold or any other commodity to gain a higher percentage of return than the 2 percent annual return they would receive from the government. This would historically increase the amount of revenue into the program, which needs to hold funds separate from other government funds.
The reforms were blocked on Capitol Hill, no alternative solution was offered, and this was a major issue for the Democrats when they captured control of Congress in 2006.
They would never admit a problem existed. In both the 2004 and 2006 campaign, the Democrats made allegations that the Republicans were going to stop sending retirees their Social Security checks, attempting to use their scare tactics to gain votes from the elderly.
In March of 2000, Al Gore stated in reference to Social Security: “if it ain’t broke, don’t fix it. Shore it up the way we always have.” Senator Charles Schumer (D-NY) said Social Security should get “fine-tuning” rather than a replacement “with something completely different.”
In the meantime, Social Security has amassed $4 trillion of unfunded liability and if major changes are not made quickly, the government will only be able to pay 70 cents for each dollar of promised benefits. The Social Security Trust Fund contains no actual assets. Instead, it contains government bonds that are simply IOUs, a measure of how much the government owes the system.
According to Bruce Bartlett in “Forbes,” “The total unfunded indebtedness of Social Security and Medicare comes to $106.4 trillion. . . Thus federal income taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by these programs under current law over and above the payroll tax.”