Major Reforms To Entitlements Can't Be Put Off - Investors.com

Major Reforms To Entitlements Can't Be Put Off - Investors.com: "Procrastination is rarely a cost-free strategy. That is true when it comes to fixing Social Security — as much as the Obama administration and, even more forcefully, its allies on the left may wish to believe otherwise.

Their 'what's the big rush?' message goes like this: The retirement program isn't really contributing to deficits in the short run.

Indeed, its finances are healthy enough so that it can continue paying all promised benefits for more than two decades, until 2037.

Even then, if absolutely nothing is done, Social Security would be able to pay about 75% of promised benefits.

So where's the fire? Here it is. Last year, for the first time in its history, Social Security paid out more in benefits than it received in payroll taxes.

The recession caused this shortfall: Seniors who lost their jobs chose to start collecting benefits earlier, while payroll tax collections fell because of high unemployment and lower wages.

As a general matter, it's true — although less than previously — that Social Security is not a cause of short-term deficits.

In fact, until last year, the surplus in the Social Security trust fund masked the true size of the current deficit. But the 2010 experience is a hint of things to come — soon.

By 2015, Social Security will be increasing the deficit every year, not obscuring it.

Still, that's not the real problem, or the strongest argument against thumb-twiddling. The reason is that making changes now will make it easier to protect the very people that the 'Social Security's not a problem' brigade say they care about.

Need To Act Now

The Social Security trustees make this point every year in their annual report about the system's finances: 'If action is taken sooner rather than later, more options will be available and more time will be available to phase in changes so that those affected have adequate time to prepare.'

The challenge isn't huge, but it is significant. As a useful paper by Charles Blahous and Robert Greenstein for the Pew Fiscal Analysis Initiative explains, when the trust funds run out, the gap between Social Security revenues and benefit payments will be 1.3% of the gross domestic product — about one-fifth of the projected deficit then.

Yes, Medicare and Medicaid present a bigger challenge, but the Social Security shortfall represents a significant slice of the deficit.

Unlike the health programs, whose solvency ultimately depends on the uncertain enterprise of slowing cost growth, the potential fixes to Social Security are both obvious and reliable.

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