There's a 25,000-mile-long crisis looming in our country's future.
By 2041, there will be a $366 billion gap between what Social Security beneficiaries have been promised and what will be collected in Social Security taxes. Stack those dollar bills side by side, and you can build a wall of money six times longer than the Great Wall of China.
It's a fiscal crisis that won't happen tomorrow, but one that we can't ignore today. That's why the Texas Society of CPAs has adopted the reform of Social Security and Medicare as one of our major policy initiatives, and the reason why we've written a briefing paper about it.
For too long, public policy-makers have ignored the warning signs and done little to shore up the financial future of these two crucial programs.
Reforming Social Security and Medicare isn't a matter of politics or ideology. Instead, it's based on simple accounting. The current numbers don't add up - a red flag for CPAs and a potential disaster for future American workers and retirees.
Social Security is the largest government program today, making up about 21 percent of all federal spending. Medicare isn't far behind, representing 19 percent of the federal budget.
Social Security is a "pay as you go" kind of system. Workers are taxed, and about 80 percent of those taxes collected today pay the benefits of current retirees. The remaining 20 percent of the collected taxes are deposited in the Social Security Trust Fund, which unfortunately isn't much of a trust.
The surplus Social Security taxes are immediately loaned to the federal government to pay for other government programs. In return, the trust fund is issued IOUs in the form of special-issue, interest-paying Treasury bonds. The federal government now owes the trust fund at least $1.5 trillion dollars, an amount that will almost certainly require policy-makers to increase taxes, cut spending or borrow from the public when it comes time to repay these IOUs.
Despite these challenges, the "pay as you go" system would continue to work well if the number of workers and Social Security beneficiaries was expected to remain constant.
But that's not the case. America's population is growing older, and our birth rate is declining. That means more Americans getting monthly Social Security checks, with fewer workers paying taxes to fund those checks.
A Government Accountability Office study shows that, without any changes to these programs, balancing the budget in 2040 could require actions as drastic as cutting federal spending by 60 percent and raising taxes to about 2.5 times today's level. If policy-makers choose not to cut spending and increase taxes, the national debt will explode and make hyperinflation the only way to reduce the debt burden.
I don't know about you, but that's not the future I envision for my children and grandchildren. It's probably not what you want to see happen either, and that's why it's so important for CPAs to take a stand on this issue.
If CPAs don't lead the charge for reform, who will? As CPAs, we understand complicated financial issues, and Social Security and Medicare are two of the most complex around. The public may not adequately understand the financial dimensions of these funding problems, but CPAs do.
Our profession is one that serves the public trust every day. That's why we can help shine the light of financial truth on this situation and educate the public and policy-makers about its magnitude and seriousness.
CPAs can explain the numbers and call for greater transparency in the process, coupled with better accounting systems to monitor and report on Social Security and Medicare in the future.
Plus, CPAs understand better than anyone how many Americans count on their Social Security checks when it comes to retirement planning. If these critical government programs continue on their current path, our clients, friends and neighbors could face a perilous financial future.
But we in Texas can't achieve reform alone. We need CPA voices across the country urging their elected officials to take actions that will reform Social Security and Medicare, ultimately assuring the government support programs' continued fiscal health and avoiding passing a massive financial burden on to future generations.
However, just calling attention to the problem won't fix it. The TSCPA and CPAs nationwide must be ready to assist policy-makers in finding realistic solutions to these two funding crises.
That's why the society wants to build a coalition with other state CPA societies and interested parties.
Many state CPA societies have launched financial literacy efforts aimed at improving the public's money management skills. Part of the profession's financial literacy effort should include informing the public about the country's changing demographics and the financial effects that these will have upon federal programs like Social Security and Medicare.
It's time for CPAs to step up and take a leadership role in securing America's economic future. The future is before us, and none of us want a 25,000-mile-long fiscal crisis blocking the view.
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