Social Security: on its way to bankruptcy

Editor's note: This is part one of a two-part series on the nation's Social Security system.

From Reporter Jim Angle

FALLS CHURCH, Virginia (CNN) -- Sam Levine, a retired musician, is quick to trumpet Social Security as his financial lifeline. "Without it, we would have a terrible time trying to live a semi-respectable existence in our old age," he says.

Social Security's capacity to care for retired people is strained, however. Workers now entering the work force won't even get back what they pay into the program through payroll taxes, and payroll taxes are likely to go up even higher.

Like many retirees, Levine and his wife, both 77, depend on their monthly SSI check. "The percentage of our Social Security that we're getting amounts to close to 60 percent of our annual income," he said.

The high return he and his wife see from Social Security is what has made the program so popular. With 76 million baby boomers headed for retirement, it is also unsustainable.

Less workers per retiree

In 1945, there were 20 workers for every retiree. Now, there are only three. By 2029, there will be less than two workers paying into the system for every senior citizen taking money out of it.

"The joke is, you graduate from high school, you get a diploma, and a senior," said Sam Beard, the founder of Economic Security 2000. "It won't work."

Former Colorado Gov. Richard Lamm, speaking for the National Taxpayers Union, agreed. "To my mind, it is a public policy Taj Mahal. It was the right thing to do at the time. But it has structural flaws," he said.

If nothing in the current Social Security system is changed, by 2029, taxes from workers will fall $700 billion short of paying for the same benefits per person that Sam Levine gets now.

Experts say the program will already be in hot water in 15 years, though -- in 2011, baby boomers will start to retire and the system will begin paying out more than it takes in.

No resource left but payroll taxes

That shouldn't have been the case. Social Security gets your payroll taxes then turns around and pays most of it out in benefits. The rest is supposed to go into the Social Security Trust Fund and earn interest. Instead, the government has been pocketing the money, spending it on other government programs and giving the trust fund IOU's.

When the Social Security program needs the money it is supposed to be able to turn to the government and say, "now, pay up." Since the government won't have any money it will have turn to the taxpayers for hundreds of billions of dollars, just to keep its promises.

"Ultimately their taxes are going to be raised or their benefits will be cut. There is no way to get around it," said Sylvester Schieber, who sits on the Social Security Advisory Council.

Payroll taxes have already been raised 17 times since 1950, and 70 percent of Americans now pay more in payroll taxes than in income taxes. Although raising taxes even more would be a political challenge, the political clout of seniors' groups makes cutting benefits even more difficult.

The system hasn't faced the future

Levine argues that "old people need a sense of security," but that many are losing confidence in their retirement because it is being chipped away by the government.

His generation may be the last one to enjoy that sense of security. They got back everything they paid in about four years. Soon, those who retire will barely break even. Younger workers will actually lose money.

Social Security's greatest success, providing for a generation of senior citizens no matter what, may prove to be its biggest downfall. Popular support for the nation's most popular program has been eroded by its failure to look ahead.

Related stories:

• Trustees: Medicare could be broke in 5 years - June 5, 1996
• Panel at odds on securing Social Security - July 29, 1996
• Putting Social Security on Wall Street - February 16, 1996

Related site:

• Social Security Online

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