It won't be the end but rather the beginning of the end. In 2017, a year in which the next president could serve if re-elected to a second term, Social Security will begin paying out more in benefits than the amount of revenue it takes in through payroll taxes. So it will have to start dipping into the so-called trust fund, which, by the way, is filled with government IOUs. Assuming those IOUs are made good, the trust fund will still be depleted in 2041 and benefits slashed by 25 percent. So unless the next president wants a Wikipedia entry that forever notes his or her failure to solve one of the two most pressing financial problems facing America (with Medicare being the other), he or she will have to come up with a long-term fix and push it through Congress.
But anyone paying attention to the 2008 presidential race knows just how hard that all could be. Now the good news here is that the candidates are talking about Social Security, for the most part, as a system in crisis that America's next CEO will need to deal with. In that way, Social Security is no longer the electrified "third rail" of American politics. "What's critical is to recognize that there is a potential problem," Sen. Barack Obama declared at the most recent Democratic presidential debate, in Hanover, N.H. And as Republican front-runner Rudy Giuliani told U.S. News recently, "I believe Social Security will be straightened out if almost anybody ... gets elected."
Taxing. Now the not-so-good news: Whenever either side starts talking about solutions, it's clear the deadly third rail has somehow split into two equally lethal minirails, one for Democrats, one for Republicans. For the Dems, it seems their only solution is higher taxes. Sen. Hillary Clinton has ruled out cutting benefits or raising the retirement age, leaving only higher taxes as a possible fix. Obama has explicitly stated that raising the income cap on Social Security taxes "is probably going to be the best option." (It's an option, according to Gregory Mankiw, former chairman of the Council of Economic Advisers, that would effectively vault the top marginal tax rate to 50 percent from 35 percent.)
For Republicans, it's just the opposite. Higher taxes are the one thing that seems definitely off the table. In a recent interview, for instance, Giuliani apparently indicated he would be willing to consider higher taxes as a possible fix. "I am opposed to tax increases," he told the Associated Press, "but I would look at whatever proposal [a bipartisan panel] came up with and try to figure out how we can come up with a bipartisan way to do it." In a New York minute, Steve Forbes, Giuliani's chief economic adviser, was dashing off a letter to an influential antitax group, the Club for Growth, reassuring the organization that Giuliani believes higher taxes "are not the solution."
So where's the common ground for action—unless one side wins the White House and control of Congress with massive, filibuster-proof majorities and can shove a reform plan down the throat of the other party? What—in a 51-to-49 nation—does a compromise on Social Security reform look like? In 2005, three former political aides to President Bush, Sen. John McCain, and former President Clinton hashed out a compromise plan that seems pretty reasonable. Half the funding gap would come from benefit reductions—future benefits would be limited to what could be afforded by the current payroll tax—and half from revenue increases through a gradual rise in the payroll tax cap. A portion of that revenue and a mandatory additional 1.5 percent employee contribution would go into, yes, a personal retirement account. The retirement age would also be raised to 68 in 2017 from 67. If only fixing healthcare were so simple.