Medical breakthroughs that extend Americans' lives will put even greater strain on an already threatened retirement system.
The biotechnology company, EntreMed, electrified investors with the news of its success in eradicating cancer in lab rats. The prospect of curing a disease that has haunted countless families the world over truly is a cause for celebration. This news follows the recent trend of medical breakthroughs that appears as a light at the end of the tunnel for many deadly diseases.
For instance, studies show that Pravachol reduces the risk of a first heart attack and death from heart disease by up to one-third. David Ho, selected as Time Man of the Year in 1996 for his development of the AIDS drug cocktail, has helped to fend off the debilitating effects of the disease and continues research in pursuit of an AIDS vaccine. The anti-breast cancer drug tamoxifen has been shown to prevent the onset of the disease in women believed to be at high risk and significantly reduces the rates of recurrence and death in those afflicted.
Ironically, though, any breakthrough that increases the life expectancy of the population is a serious threat to Social Security. The 1998 Social Security Board of Trustees Annual Report states that, thanks to the robust economy, the program may remain solvent slightly longer than previously expected. However, the trustees did not take into account increases in life expectancy that have been driven by the innovations of companies like EntreMed. In fact, the report did not even use the most recent estimates of the Bureau of the Census, which projects average life expectancy to be almost two years longer than the data used by the trustees. Remember, an extra two years of life for a single retiree means an additional two dozen payments from the Social Security Administration (SSA).
In fewer than 15 years, the Social Security Administration expects to begin paying out more in benefits than it collects in taxes. In theory, the SSA then will begin to meets its obligations by using the assets saved in the trust fund. The problem is that the trust fund is an accounting gimmick. By law, money going into the trust fund has to be used to purchase government bonds. Because these bonds simply are government IOUs, the so-called trust fund might as well not exist at all. Whether the government decides to pay back the SSA for the value of the bonds or pay the promised benefits to retirees directly makes no difference. In either case, in order to raise the necessary revenue, the government will have to increase taxes, cut spending, or sink deeper into debt.
The fiscal difficulties Social Security faces are the result of its "pay-as-you-go" financing scheme...