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Social Security

Forecast Brightens For Social Security

By Amy Goldstein
Washington Post Staff Writer
Wednesday, April 29, 1998; Page A02

For the first time in a decade, the prognosis for Social Security's financial health has brightened significantly, with the government predicting that the program's trust fund won't run out of money until 2032, three years later than previously expected.

The annual forecast, released by the Clinton administration yesterday, suggests the strong economy is helping to buffer the nation's retirement system from the looming burden of supporting the enormous baby boom generation when it reaches old age.

Produced every year by the trustees who oversee Social Security and Medicare – the twin but fragile pillars of the nation's assistance to the elderly – the forecast arrived at a time when Democrats and Republicans alike are engaged in a vigorous debate over how to stave off insolvency for both programs.

In announcing the latest projections, several Cabinet members emphasized that the reprieve was heartening but merely temporary, and that the rare good news should not weaken the federal government's need to find a durable solution to prevent Social Security's eventual insolvency. "As the president is fond of saying, the time to fix the roof is when the sun is shining," said Social Security Commissioner Kenneth S. Apfel.

Indeed, President Clinton immediately sought to blunt any attempt that liberals might make to argue against changing the program, or that conservatives might make to spend budget surpluses for tax cuts. "These modest improvements only underscore the fundamental challenge we face. We must act to make certain that Social Security is as strong for our children as it has been for our parents," the president said in a Rose Garden appearance.

But liberals as well as conservatives vowed yesterday to continue to pursue changes to a program that until recently was deemed politically untouchable. "I'm not sure focusing on a particular date is useful. We're going to have to deal with this sooner or later," said Michael Tanner, director of the Cato Institute Project on Social Security Privatization.

"Social Security will soon be swamped by a demographic tidal wave that can't be stopped," said House Ways and Means Committee Chairman Bill Archer (R-Tex.).

The tidal wave will begin in 2011, when the 77 million-strong baby boom generation begins to retire. By 2030, when the generation is expected to be fully retired, Social Security retirement benefits are projected to increase from 4 percent to 6 percent of the gross domestic product, according to the new projections. And Medicare, which provides health care benefits to 38 million retirees, is expected to increase from less than 3 percent to 6 percent of GDP.

Such pressures, combined with the recent strength of Wall Street, have created growing receptivity to the possibility of preserving Social Security by relying, at least partly, on private investments. Asked whether the government should allow Americans to invest part of their Social Security taxes in the stock market, 60 percent said they liked the idea, according to a poll taken earlier this month by Yankelovich Partners for Time magazine and CNN.

The political tug-of-war over Social Security will escalate today if the House votes on a Republican bill that would create a bipartisan commission to study Social Security and possible solutions to its problems. A similar Medicare panel created out of last year's balanced-budget deal began its work last month.

Administration officials contend a Social Security commission would be cumbersome, and would interfere with the national dialogue Clinton hopes to stimulate in a series of town meetings, the first of which took place in Kansas City this month.

Yesterday's report demonstrated that legislated changes can have a potent effect. Based on changes to Medicare set in motion by the budget deal, the solvency of the trust fund that pays for retirees' hospital bills has been extended to 2008, the report said. While the fund is not projected to last until 2010, as calculated last summer by the program's actuary after the budget agreement was adopted, the trustees' new forecast gives it seven more years of solvency than they expected a year ago.

"What a difference a year makes," said Health and Human Services Secretary Donna E. Shalala.

As for Social Security, Urban Institute economist Marilyn Moon, one of the trustees, said yesterday that the burden on the trust fund will be lessened by a combination of low inflation, low unemployment and higher wages.

The forecast predicts that new payroll taxes will become insufficient to entirely cover the benefits paid out in 2013, a year later than predicted last year. By 2032, the trust fund will have depleted its reserves, and the program will be receiving only enough income through payroll taxes to cover about three-quarters of the benefits it pays out.

Moon and other health economists said the forecasts, which look 75 years into the future, are highly useful but certain to change. Said Brookings Institution economist Robert D. Reischauer: "To think we know the course of the economic or demographic developments 25 years from now is hubris in the extreme."

Staff writers Clay Chandler and John F. Harris contributed to this report.

© Copyright 1998 The Washington Post Company

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