Lifting the Veil of Confusion

Lifting the Veil of Confusion
CPAs Have Influential Role in Social Security Reform

By John J. Kearney

Continued from the Home Page

According to the trustees of the retirement program, over the next 75 years Social Security will owe roughly $3.7 trillion more in benefits than it will collect. Beginning in 2018, scheduled benefits will begin to exceed payroll taxes, which will require Social Security to start dipping into its trust funds. The trustees project that the system will exhaust these reserves in 2042, and only will be able to pay 73 percent of scheduled benefits at that point.

The Congressional Budget Office sings a slightly different tune. According to their testimony, outlays for benefits will begin to exceed the system’s revenues in 2020. Under the current formula, the trust funds will run out in 2052, which would mean that beneficiaries would then only be able to count on receiving 78 percent of their scheduled benefits.

So do these figures represent a financial crisis that requires a major overhaul, or should they be viewed as shortfalls that can be accounted for through careful planning and small modifications to the retirement program?

Unfortunately, Social Security reform is a political hot potato. Different proposals and viewpoints reported in the press, from legislators and lobbying groups, among others, make it hard for the public to glean the complete truth. That is where I believe we, as members of the CPA profession, could play such a significant role. Setting our political affiliations aside, we can and should apply our knowledge and expertise to the Social Security debate.

Regularly, we attest to the financial condition of our personal and business clients. And many of us also advise our clients of the steps they should take to address and improve their fiscal well-being. The very concerns that drive our professional responsibilities are, in many ways, the same ones that currently surround Social Security. In this light, who better to help ascertain and make recommendations about the financial health of our nation’s retirement program than the CPA profession?

Last December, the NYSSCPA joined with representatives of some of the other large state societies to meet with the American Institute of CPAs to discuss this issue. The AICPA will soon release a white paper that examines the current social security program and suggested alternatives.

Some of the options on the table include borrowing, increasing the retirement age, reducing benefits, or raising payroll taxes, something President Bush has said he is not willing to do. Of course, the controversial recommendation that is receiving the most attention right now is the creation of personal investment accounts in which workers could divert a portion of their Social Security taxes into stocks and bonds, reducing benefits for anyone who currently is younger than 55. In his State of the Union address, President Bush said that under this proposal, the Social Security system would not change for any American 55 or older. In general, there is some indication that young workers support the idea of funding their own personal nest egg, while middle-aged workers, in their 40s and 50s, worry that they would not have enough time to build up these investment accounts and would be subject to reduced benefits.

Not only is the profession more than qualified to scrutinize these proposals, but any recommendation that may get passed could have a significant effect on our clients. For example, the president’s proposal to create personal retirement accounts could result in more investment decision making by middle-income workers who will rely on their CPA’s financial and retirement planning expertise. Or, any changes to the payroll tax could necessitate more tax planning for CPAs with small business clients.

The point is, the profession has both a personal stake and—because of its breadth of experience and knowledge—a public responsibility to get involved in the Social Security debate. To that extent, the AICPA and the Society over the coming months are going to be key players in this discussion.