When the warm, fuzzy blanket becomes threadbare.

• Author: McMahon, Thomas M.
• Position: Social Security - Column

"Contribute while you work, and ever-increasing benefits will be yours when you retire." That's the implied promise America's elected leaders have made to participants in the Social Security program for years. And so far the promise has been fulfilled, but for how long?

When Social Security was enacted in 1935, the retirement age was 65, as it is today. But the life expectancy of the average worker was 60. Today, the life expectancy is 85 - and it will continue to increase. Likewise, in 1935, 6 percent of the U.S. population were over 65. Today, 13 percent are over 65, and by 2030, 20 percent will be.

The bottom line? While we're living longer, fewer individuals are in the workplace per retiree, and this pattern will continue. In 1945, 41.9 workers were paying into the Social Security system for every benefit recipient. Today, the ratio is 3.2-to-1. In 2030, it will be 2.1-to-1.

ONE GIANT IOU

Actuarially, Social Security faces the same situation - i.e., more retirees and fewer workers to support them - that many Rust Belt union pension plans faced in the 1980s. We're all too familiar with what happened to the LTV hourly pension fund. Could the same bankruptcy be in Social Security's future? It undoubtedly will be unless we make significant changes to the system.

This isn't a new problem. In the early 1980s, we experienced the first Social Security funding crisis. When compromise legislation finally was enacted, less than one month's reserves remained to pay benefits. At that point, the maximum annual employee and employer contribution to Social Security was $2,631.44. Today, it's $7,598.80. (Theoretically, it's unlimited since the salary cap was taken off the Medicare tax.)

These rates are so high that 80 percent of American taxpayers pay more in Social Security taxes than they do in income taxes. Of course, the purpose of the increased rates was to establish a surplus that would cover reduced contributions during recessions. But, more important, it would establish and maintain the system's solvency during the baby boomers' retirement years. Unfortunately, concomitant with this change to the system, the great American deficit decade began.

As the system began to receive the infusion of cash, it just as quickly turned it over to the federal government to pay for such items as aid for dependent children, B-1 bombers and Congressional retirement increases. In return, Social Security received an IOU from the federal government. Today, the tab...