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Overhauling Social Security

Preparing the ground for revisions: Likely tax and benefit changes
Social Security is not in crisis. But itís surely headed there if nothing is done to change funding or benefits. Despite clear long-term funding problems, most politicians are loath to take on the Social Security issue, since any solution is sure to cause someone pain.

Understanding the trust fund is the key.
Reason for shortage: Surplus trust fund money is loaned out to help finance the federal budget. Uncle Sam covers the loan by issuing interest-bearing treasury bonds. So the fund is really a stack of IOUís, which this year totals $1.8 trillion. Social Security will need to start redeeming bonds in about 2018. By then, payouts will top incoming revenue. By 2042, the fund surplus will be gone.

Key players in the Social Security debate in addition to the president include Rep. Bill Thomas (R-CA), chairman of the House Ways and Means Committee. Thomas will push to link Social Security reform to tax reform. Sen. Lindsey Graham (R-SC) will try to forge a compromise to win the votes of nervous Republicans such as Maine Sen. Olympia Snowe and moderate Democrats such as Delaware Sen. Tom Carper. Minority Leader Harry Reid of Nevada will lead the Senate opposition, and Rep. Charles Rangel (D-NY) will head House foes of personal Social Security accounts.

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