The Fix

Teresa Ghilarducci, director of economic policy analysis at the New School for Social Research, is the author of “When I’m 64: The Plot Against Pensions and the Plan to Save Them.”

Because baby boomers pay more payroll tax than the system is paying out in benefits, boomers have saved for their own retirement most of their working years. They may have run up their credit cards, but they saved through the Social Security system. These excess payroll taxes bought special-issue government bonds that always paid above the market rate for risk-free government noncallable bonds; these bonds were created especially for the Social Security taxpayers.

In 2016, we are going to cash them out like every retired person does with their retirement money. When a person cashes out their pension fund it is not called “a problem” and neither is redeeming the assets in the Social Security system a problem.

In another 25 or so years, the system will not have enough money in the system to pay full benefits. Now that would be a problem. And there are two types of fixes: cut benefits or raise revenue. Given that pensions have collapsed and are not getting better any time soon and more old people are going to be poor, benefit cuts are off the table.

Since most of the earnings growth in the last two decades went to the top paid people, those earning much more than the Social Security taxable salary of $106,800 the system lost revenue. A quick fix is to gradually increase the taxable earnings base from current coverage of just 85 percent of earnings to 100 percent by 2045. That would solve the entire predicted Social Security deficit for 75 years. Done.