After health care, social security debate looms

updated 3:54 p.m. ET Aug. 12, 2009

WASHINGTON - As Congress agonizes over health care, an even more daunting and dangerous challenge is bearing down: how to shore up Social Security to keep it from burying the nation ever deeper in debt.

What to do about mushrooming government payments as millions of baby boomers retire? How about a giant federal Ponzi scheme? That might work for a while.

But wait. That's pretty much the current system. Social Security takes contributions from today's workers and uses them to pay the old-age benefits that were promised to retirees. But there are serious concerns how long that can last.

President Barack Obama has said he'll tackle Social Security and related "entitlement" programs when the health care overhaul is resolved. But the anger and intensity of that debate could complicate his effort.

Failure on health care could make it harder, if not impossible, for Obama to successfully tackle overhauling Social Security, Medicare and Medicaid.

The raucous health care debate is "a bad omen for any change in social policy," said Ross Baker, a political scientist at Rutgers University who's also a former Senate aide.

"People seem to be very fearful of tampering with what already exists. It may be a simple reaction to the uncertainty that's been introduced into people's lives by the recession," Baker said. Still, he said, if not Obama, "some unfortunate president down the road is going to have to deal with it when the crisis strikes."

Although calling Social Security a Ponzi scheme — think of the huge frauds that sent billionaires Bernard Madoff and R. Allen Stanford to prison — may be a bit of a stretch, there is one clear similarity.

As in a Ponzi scheme, the concept works fine at first. So long as there are more new "investors" pumping money into the system to pay off the earlier ones, everyone is happy. But at some point not enough new money is coming in and the scheme collapses.

"We had a remarkable 25-year run in terms of the economy. We had this wonderful demographic holiday where the baby boomers were moving through their main earning years," said William Gale, co-director of the nonpartisan Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute.

"Now, the economy's in tatters, the boomers are ready to retire, the world is sick of our debt. The problems are much bigger," said Gale.

With baby boomers working, Social Security — the biggest social spending program — has produced a surplus that has helped finance the rest of the government for the past quarter century. But that will change within a decade.

Trustees of the system recently said that in 2016 — a year earlier than previously forecast — money paid out in benefits will start exceeding the tax dollars flowing in. With no changes, Social Security will be completely depleted in 2037, the trustees said.

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