Social Security cannot meet its promise to future retirees without reducing benefits, increasing taxes or massive government borrowing, a presidential commission said Thursday in a preliminary report.
The report says Social Security faces a "fiscal crisis and a crisis of confidence" if it is not overhauled soon. It also lays the groundwork for a final report this fall to recommend a plan to let younger workers invest a portion of their payroll taxes in the stock market.
"The system is broken," wrote the commission's co-chairmen, former Sen. Daniel Patrick Moynihan, D-N.Y., and Richard Parsons, an executive at AOL Time Warner and a Republican.
The report made clear that workers and retirees do not own their benefits and have no legal claim to them.
"What they have is a political promise that can be changed at any time, by any amount for any reason," said the report, written by staff members with input from commission members. The full commission has not endorsed the findings and meets Tuesday.
Opponents accused the White House and the commission of trying to manufacture a crisis to scare the public and make the stock market idea easier to sell.
The commission is painting "such a dire picture of the future of the program, trying to convince the public that benefit cuts are inevitable, even though they're not," said Hans Riemer, spokesman for the Campaign for America's Future. The group of unions, special interest groups, educators and activists opposes privatization of Social Security.
The White House said the report shows the need for action.
"The president wants a solution," White House spokesman Jim Wilkinson said. "The opponents of reform want a political issue."
But a major overhaul is "a dangerous concept" that would "jeopardize the future of hundreds of millions of Americans," said Rep. Robert Matsui of California, ranking Democrat on the House Ways and Means Subcommittee on Social Security.
Opponents argue that stock market investment is risky and that the cost of setting up such a system would mean benefit cuts.
At a glance
Among the findings:
In 2016, the program will pay out more in benefits than it takes in from payroll taxes.
The system is projected to go broke in 2038.
The total borrowing needed to finance shortfalls would be $7-trillion by 2040, $14-trillion by $2050 and $47-trillion by 2075.
In 1960, there were more than five workers paying into the system to fund benefits for one retiree. Today, there are 3.5 workers per retiree. By 2030 there will be just over two.
If taxes were raised in 2020 to make up for the projected shortfall that year, a couple earning $50,000 would pay $860 more in payroll taxes in today's dollars.
If benefits were cut in 2020 to make up for the projected shortfall that year, a retired couple's benefits would be reduced by $2,227 in today's dollars.
Source: the President's Commission to Strengthen Social Security