Financial Aspects of the Social Security 'Problem'

Abstract

Many consider the Social Security system to be in crisis, based on predictions that, after 2020, program expenditures will exceed the revenue generated by a shrinking tax base. "Reform" measures call for increasing revenue, increasing investment returns (by "privatization"), or decreasing benefits. However, reformers are laboring under some misconceptions about the system, and their proposals do not address the fundamental question: How can we ensure that the US economy will have sufficient productive capacity, given its shrinking workforce, to ensure that real resources will be available to provide the goods and services needed by future retirees?

This paper examines the workings of the Social Security Trust Fund (how payments are received and benefits paid), critiques popular reform proposals, and recommends policies that address the availability of real resources rather than financial resources.

Keywords: Social Security reform, Social Security funding, Social Security Trust Fund, funding crises