Thursday, August 6, 2009

FORTUNE MAGAZINE: "The next great bailout: Social Security"

The most recent issue of Fortune magazine contains a compelling article on Social Security at The author of the article (Allan Sloan) who is nearing retirement age, points out that Social Security is nearing the point where annual cash flow (payroll taxes collected from workers minus claims paid) will turn negative. The annual Social Security cash flow deficits must be funded with additional Treasury borrowing which will put further upward pressure on interest rates.

Mr. Sloan proposes some fixes for the problems, including raising the covered wage limit (but not too high). He is very clear that it is important not to "tax the rich" too much in any such fix.

After the health care legislation is done (which is supposed to address the even more challenging Medicare solvency questions), Social Security would seem to need some attention. Let's just hope Washington is up to the task.