Our Social Security Blanket

One of the long debated public policy issues since it's inception has been the Social Security Program. This program was conceived as a way to both provide income for individuals late in life (who are less able to earn income) as well as provide some incentive for people to eventually retire and open up jobs to a younger generation.

I don't have to go over how the whole program works. But I do think it's important for people to know that Social Security is an unfunded program. When I say unfunded program, it means that the money you and I pay into Social Security (not like we have a choice, it's deducted from our paychecks) is not being set aside just for us when we retire, but is going to pay the benefits of current retirees. If Social Security were a fully-funded program, I would be paying into my own retirement and you into your own.

When this program was first conceived, an unfunded program seemed to be the best way to provide Social Security benefits as soon as possible. What the program's creator, President Franklin Delano Roosevelt, did not (and could not) foresee was what effect a sudden "baby boom" would have on the Social Security program.

Ten years after Social Security was signed into law, the Second World War had just ended and American Soldiers returned to America with a promising and bright economic future ahead of them. There was a flood of new births in the United States and from 1946 to 1964, there was a large growth in the American birth rate.

Now let's fast forward to today. The earliest age to retire and collect Social Security benefits is 62 (with 65 for full benefits and 67 for increased benefits). So the earliest Baby Boomers (1946) are currently 63 years old and the latest Baby Boomers (1964) will reach early retirement age in 2026. The big fear is that there will not be enough current workers to pay the benefits of the current retirees.

Our nation has not since had another baby boom to rival that of the Baby Boomers. Now my thinking would be that the Baby Boomers would create a "Second Wave" of Baby Boomers (when the Baby Boomers began having children), and then that Second Wave would produce a "Third Wave", but this has not been the case. Demographically speaking, the increase in the American birth rate when the Baby Boomers hit reproductive age has in no way compared to that of the original Baby Boom. This the result of a cultural shift; people are having less children now, and later in life, than they would have in the 1940's through 1960's; which has further compounded the Social Security problem.

Analysts have already warned Congress that when the Baby Boomers begin to retire that the current surplus in the Social Security Trust Fund will eventually dwindle and bankrupt Social Security sometime after the year 2020. There will be too much money paid out in benefits than is being paid in by the current workers.

I myself am part of the "Second Wave". My mother and father are both Baby Boomers and they will soon be ready to retire. I am currently in my mid 20's and enjoying my adult life as well as contemplating having children with my wife. Social Security means a lot to me (as I may never see a cent of it but have definitely paid into it) and is an issue that is very near to my heart.

So what options do we have to save Social Security? Traditionally, the main options have been to (1) raise taxes and increase revenue to the Social Security Fund, (2) raise the retirement age, and/or (3) cut benefits. I agree there needs to be a short-term solution considered now, but there is also a long-term solution to the problem.

The Cash for Clunkers program and the First Time Home Buyers Tax Credit were successful programs, at least by economic consumption standards. These cash incentive programs achieved their intended purpose: they made consumers purchase cars and houses. A long-term solution to Social Security would be if President Obama created the "Bucks for Babies" program that provided a cash incentive (in addition to tax breaks) for people to have children who eventually will work jobs and pay into Social Security. This would help to change the reproductive strategies in America in much the same way Cash for Clunkers and the Tax Credit incentivized and influenced the consumption patters of Americans.

Of course this can easily backfire without the right restrictions. The wrong people could begin having children that they can't afford to take care of. The Bucks for Babies program would make jobs more competitive when the new wave of children reaches working age, potentially increasing unemployment. The idea needs some work, but can be considered another option to reform Social Security.

And it would be a lot less expensive than the other solution I advocate for; making Social Security a fully-funded system. This would require spending a LOT of money to fund the current retirees' benefits while the current workers begin saving for their own retirement.

Clearly something needs to be done and there are options available. It would just be nice to see Congress actually heed some of the warnings they have been given and take action on the issue rather than being so short-sighted and focused on reelection.