Created in 1935 during President Franklin D. Roosevelt’s first term, Social Security epitomizes modern America’s commitment to a more humane democratic capitalism. As the New Deal intended, Social Security by and large provides retired workers with a decent standard of living. Americans aged 65 and up were once the poorest age group in the country; they now have the lowest poverty rate, thanks largely to Social Security.
Opinion Social Security needs fixing. Fortunately, it doesn’t have to be painful.
By the Editorial Board
March 16, 2023 at 11:45 a.m. EDT
Unsurprisingly — and, to a great extent, justifiably — Social Security, which makes monthly payments averaging $1,538 to 49 million retirees (it supports millions more via programs for surviving spouses, dependents and disabled workers), enjoys near-sacrosanct political status. Democrats and Republicans alike say they want to attack the debt while keeping Social Security “off the table.”
This is further proof that bipartisan consensus and sound policy are two very different things. There is no serious approach to fiscal sustainability that excludes Social Security. It spent $1.2 trillion in fiscal 2022, or about 21 percent of the total — $5.8 trillion — that Washington spent for all purposes. These outlays are rising inexorably as the population ages: The Congressional Budget Office estimates Social Security’s price tag will nearly double between now and 2033, to $2.3 trillion, or 24 percent of federal spending.
Contrary to common misconception, Social Security does, indeed, contribute to federal debt and deficits. On paper, its dedicated revenue stream — mainly a 12.4 percent payroll tax, split between employees and employers — goes into a trust fund. But in financial reality, the government taps that trust fund via regular borrowing. Since 2021, the trust fund has paid out more than it has taken in, and when it’s finally exhausted in 2034, Congress will face a choice between limiting benefits to what it can pay from current Social Security tax receipts — i.e., cutting them 20 percent — or borrowing from other sources to pay them in full. It will almost certainly choose the latter.
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The good news is that there is still sufficient time before the actuarial day of reckoning to take the necessary measures, just as President Ronald Reagan and House Speaker Thomas P. “Tip” O’Neill Jr (D-Mass.) did when they pushed through a reform package in 1983. They were acting on warnings of looming insolvency that were first raised in the mid-1970s.
The even better news is that there are plenty of plausible ways to stabilize Social Security. While none would be entirely painless, the costs would be reasonable. Those costs can and should be borne primarily by those with the means to do so, rather than by lower-income people, whose benefits can and should be protected.
Specifically, it would take program changes worth 3.42 percent of all taxable payroll to assure the often-cited goal of 75 years of solvency, according to the most recent report of the Social Security actuary. A plausible plan would involve these elements: broadening the base upon which the 12.4 percent payroll tax is levied — currently 84 percent of all earnings — to the 90 percent that prevailed in 1982, at the time of the Reagan reforms; gradually indexing up the age, currently 67, at which people may retire at full benefits, to take account of longer retirements due to rising life expectancy; and shoring up the program’s distributional equity, via tweaking benefit formulas to trim how much high-income households get and increases for the most vulnerable. The latter category would include a minimum benefit equal to 125 percent of the official poverty line as well as a “bump up” in payments to the very aged. And all new state and local employees should be required to pay Social Security tax — and receive the benefits — though existing opt-outs for the small minority of state and local government workers who chose not to participate in Social Security should not be altered.
This package, illustrated in the accompanying table, would not quite eliminate the trust fund’s projected shortfall. It would close 87 percent of it, however, according to projections provided by the Committee for a Responsible Federal Budget. That’s good progress, given the tough politics of the issue and the uncertainties surrounding long-range forecasts.
Closing the rest of the 75-year gap would require one more major step: changing the formula by which Social Security adjusts benefits for inflation, to an arguably more accurate measure — known in wonkspeak as the “chained CPI.” The resulting benefit reduction relative to current policy would be real but manageable for most households, including less-affluent ones, if Congress adopted protections for them such as those we suggested. Yet the “chained CPI,” which a Democratic president, Barack Obama, supported as recently as 2013, can indeed be attacked as a cut to Social Security and has thus far proved politically impossible.
The costs of putting Social Security on a sounder footing should also be considered in light of the benefits: freeing resources for other purposes, including some, such as education and research, that enable the economy to grow and create jobs — which, in turn, will generate revenue for Social Security.
Though the Social Security trust fund is a bit of a fiction, it is a useful one: The concept of ensuring its ability to pay planned benefits over 75 years helps define policy goals and organize policy options, by limiting them to changes in the program’s own tax and benefit structure as opposed to tapping general revenue needed for other priorities. It also acknowledges political reality, which is that people think of Social Security as an earned benefit for which they paid, via taxes, in their working lives — not “welfare.”
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End of carouselAlso on the Editorial Board’s agenda
- The misery of Belarus’s political prisoners should not be ignored.
- Biden has a new border plan.
- The United States should keep the pressure on Nicaragua.
- America’s fight against inflation isn’t over.
- The Taliban has doubled down on the repression of women.
- The world’s ice is melting quickly.
Ihar Losik, one of hundreds of young people unjustly jailed in Belarus for opposing Alexander Lukashenko’s dictatorship, attempted suicide but was saved and sent to a prison medical unit, according to the human rights group Viasna. Losik, 30, a blogger who led a popular Telegram channel, was arrested in 2020 and is serving a 15-year prison term on charges of “organizing riots” and “incitement to hatred.” His wife is also a political prisoner. Read more about their struggle — and those of other political prisoners — in a recent editorial.
The Department of Homeland Security has provided details of a plan to prevent a migrant surge along the southern border. The administration would presumptively deny asylum to migrants who failed to seek it in a third country en route — unless they face “an extreme and imminent threat” of rape, kidnapping, torture or murder. Critics allege that this is akin to an illegal Trump-era policy. In fact, President Biden is acting lawfully in response to what was fast becoming an unmanageable flow at the border. Read our most recent editorial on the U.S. asylum system.
Some 222 Nicaraguan political prisoners left that Central American country for the United States in February. President Daniel Ortega released and sent them into exile in a single motion. Nevertheless, it appears that Mr. Ortega let them go under pressure from economic sanctions the United States imposed on his regime when he launched a wave of repression in 2018. The Biden administration should keep the pressure on. Read recent editorials about the situation in Nicaragua.
Inflation remains stubbornly high at 6.4 percent in January. The Federal Reserve’s job is not done in this fight. More interest rate hikes are needed. Read a recent editorial about inflation and the Fed.
Afghanistan’s rulers had promised that barring women from universities was only temporary. But private universities got a letter on Jan. 28 warning them that women are prohibited from taking university entrance examinations. Afghanistan has 140 private universities across 24 provinces, with around 200,000 students. Out of those, some 60,000 to 70,000 are women, the AP reports. Read a recent editorial on women’s rights in Afghanistan.
A new study finds that half the world’s mountain glaciers and ice caps will melt even if global warming is restrained to 1.5 degrees Celsius — which it won’t be. This would feed sea-level rise and imperil water sources for hundreds of millions. Read a recent editorial on how to cope with rising seas, and another on the policies needed to fight climate change.
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To be sure, our plan would require raising taxes on those who earn more than the current Social Security taxable maximum of $160,000 per year. (The budgetary savings of doing so, according to the CBO: $670 billion over 10 years.) Yet $160,000 is an upper-middle-class income, more than twice the median household income in 2021. This means that, under our plan, the lowest-earning 80 percent of taxpayers would face no tax increase at all. The upper middle class can and should contribute to fiscal stability.
And our plan would probably mean that today’s younger generations retire at full benefits a couple of years later in life than the current norm for those born after 1960, which is age 67. This seems reasonable given that they, by and large, enjoy longer lives than their grandparents and parents; labor-force needs argue for this policy, too.
Social Security has served this country well for nearly nine decades. It can continue to do so sustainably, with modest sacrifices from citizens able to bear them. An institution this crucial, this big and this financially challenged cannot, however, be stabilized without any cost to anyone. The longer politicians — and voters — pretend otherwise, the more expensive the ultimate price tag will be.