Led by Democratic presidential candidates Bernie Sanders and Elizabeth Warren, the nation faces a call to raise Social Security payments by soaking the rich. The two senators obviously are fishing for senior votes, but we don’t yet know what their ideas would cost. It is likely to be trillions of dollars.
Before voters are seduced by Sen. Warren’s plan to increase the monthly benefit by $200, they would be wise to heed what the existing programs’ overseers say about its solvency, how long they have been issuing warnings, and what a divided Congress has done about the impending crisis, which is little to nothing. The lesson should be to go bipartisan to fix the basic problems before offering new benefits.
The Social Security actuary’s office says the system’s revenue falls so far short of promised benefits that it will have to slash benefits by 20 percent beginning about 2033. The Congressional Budget Office takes a slightly more pessimistic view, saying that Social Security may have to cut benefits as early as 2032, and by a slightly larger amount.
This wasn’t supposed to happen. When Congress updated Social Security funding and made other changes in 1983, the fix was supposed to keep the program solvent until 2058. But changes in the rate of growth of the economy, the size of the disabled population drawing benefits and the number of years recipients on average receive benefits after retiring wrecked the solvency of the system.
This impending collapse has been well known for two decades. It clearly is time to act before matters get worse. But there must be some accurate background and clear principles to guide the action.
To be clear at the outset: The problem cannot be solved without raising taxes or cutting benefits, or both. The question is who should pay: future taxpayers, future beneficiaries, or both?
Individual Social Security benefits already are increasing. Under the current system for calculating benefits, retirees get a share of the real growth of the economy as well as protection from inflation. And compared to the past, retirees are getting more because they are living longer. Compared to the average life expectancy of an American at age 65 in 1983 of about 17 years, average retirees today live 3 years longer, which means they are getting nearly 18 percent more in lifetime Social Security payments.
Most proposals seeking the essential bipartisan formula for reform in the past 20 years have relied on some mix of curbing the growth in benefits and raising taxes. One approach taken in the 1983 reforms was to gradually raise the normal retirement age to 67 by 2027 in a series of small increments while also increasing the Social Security tax.
Given the approaching collapse of the system, some have suggested pushing the retirement age to 70 and beyond as life expectancy for retirees increases to compensate for the addition of roughly 3 years of benefits since 1983.
The proposal would affect only future retirees. But, if taken, this and related costly changes needed to protect early retirees might eliminate between a quarter and a third of the Social Security deficit over the next 75 years, according to the CBO and the Social Security actuary.
That represents significant tax savings compared to trying to put the current system on its feet by taxes alone, as another major Democratic reform bill before Congress proposes.
So who should bear the inescapable burden of restoring the actuarial integrity of Social Security?
Equity and the compelling need for continuing public support for Social Security suggest that future taxpayers and future beneficiaries should both share. Sen. Warren’s proposal to increase benefits further and soak the rich divides the electorate and fails that test.