They've been pointing for years to how healthcare and pension responsibilities bankrupted General Motors. And they've said that it is only a matter of time before it happens to the Social Security System as well. Perhaps we stand at the dawn of that day. The terrible financial turmoil of the last two years, the cratered housing market, the unemployment, the recession, have all been really hurting Social Security to the point that finally, this year, there is so little coming in in taxes, that there is going to be less money going into the system than getting paid out. Nobody thought that this day would come for another five years. Of course, there is no immediate cause for worry; even if in this very year, the system starts to go into the red. But why this year of all the times it could have happened?
It's for two reasons. To begin with, the Social Security system is funded on payroll taxes. With fewer people drawing any real salary, there is far less coming in. The people who are not drawing a salary today, can't starve; they just apply for their Social Security support far sooner than they ever thought they would. So there is more money going out than anyone expected. And the Social Security program is finally on its way to bankruptcy. The only thing that's being done to protect it now, is to tax the country more, to find new sources of income.
The last time that the Social Security System seemed to be in dire straits was 30 years ago. The system was left with funds enough for a mere few months at the time. But the country has had great economic performance for all the years since then, and the coffers are full enough that there won't be any bankruptcy for another quarter century. But what does all this mean? What happens when the country's population actually falls as it is doing in Europe, where there are more old people than young in the population? Whose paychecks will they tax to fund the system? Very nearly 50 million families claim those Social Security checks each month, even today.
The basic thing you need to understand is that the money paid out as Social Security is not free mercy money from the government. This is money each worker sets out of his salary each month during his work life. If the Social Security goes bankrupt, it doesn't mean that people have been dipping into it for free money. It only means that people have taken out what they paid in, working their whole lives. One way to deal with the problem would be to do what we did once before - you raise the retirement age. You can't have people retiring around the same age today as they did 50 years ago. Life expectancy has risen, and people could expect to spend perhaps 15 years in retirement. Today, people expect, often, to spend 25 years in retirement. That is clearly unsustainable. To make the Social Security system solvent like it was 50 years ago, people would have to be allowed to work until 70. That would go down a lot better with people than raising taxes.