Social Security reaches day of reckoning

With all the talk this week about passing health care reform and throwing tea parties, you might have missed the news about Social Security. Its day of reckoning is here.

The trillions of dollars stashed away in the form of government bonds from nearly 30 years of collecting more money than was needed to meet current obligations are about to be tapped, an Associated Press story reported. Social Security has reached the tipping point where payouts are now exceeding collections from the payroll tax. A Social Security surplus is no longer available to hide the extent of federal operating deficits. A large number of politicians, economists and analysts have warned for years that this day was coming, but Congress has shown absolutely no inclination to fix the problem.

After his re-election, George W. Bush attempted to persuade Congress to fix Social Security by partially privatizing the system. Bush did not have the political standing to get what he wanted, and his plan depended upon rosy scenarios that the 2008 stock market crash refuted. But at least give Bush credit for recognizing the looming problem and proposing something. Other political figures have simply stuck their heads in the sand.

The hard truth is that Social Security is fundamentally insolvent, and its formulation must be changed, or it will have to renege on its solemn promises to a generation of workers. The retirement age must be extended, benefits must be reduced, taxes must be raised, or all three must be done together. The last scenario is likely to be the most effective. But if Democrats refuse to reduce benefits and Republicans refuse to consider tax increases, the system will eventually collapse.

Even the current fact that the federal government must now start repaying Social Security for the trillions it "borrowed" over the past 25 years involves a harsh economic reality: Taxes must be raised to pay off those bonds held by Social Security, or Uncle Sam, whose debt is already verging into the potentially catastrophic zone, will have to borrow more money.

One of the keys to effective management, the business school gurus will tell you, is identifying the problems that must be given priority, based on immediacy, magnitude and importance. President Obama and Congress have a problem with health care reform, but the nation has a crisis with Social Security. Effective management demands that the crisis be given priority.