WASHINGTON — Despite all the debate about the future of Social Security, putting the 75-year-old program on firm financial footing could be relatively painless if stretched over time, according to experts.
Retirement finance experts say a gradual shift in benefits — less to well-off retirees, but more to those of modest means — plus a small tax hike for upper-income Americans would keep the program afloat for generations.
But in Washington, long-term solutions appear to have taken a back seat to political conflicts over taxes and spending. Reformers on all sides fear that a protracted tug-of-war between benefit cuts and tax hikes will stall remedies for Social Security while the clock keeps ticking toward its potential shortfall.
"Both sides want to use this issue as a battering ram against the other. I don't know that there is the political will to tackle it," said Robert Bixby, executive director of the Concord Coalition, an independent group dedicated to restraining federal deficits. "Among the major challenges, this is the easiest. It's a relatively simple matter to fix the program. But the political forces don't seem to want to fix it."
Retirement experts say most proposed changes to Social Security would have limited impact on current retirees or baby boomers headed for retirement. The proposals under consideration — including a plan floated this month by the president's commission on fiscal responsibility — would mostly affect taxes paid and benefits received by younger generations.
"People now in their 20s would be the first generation to feel the full impact," said Craig Copeland, an expert on Social Security at the Employee Benefit Research Institute in Washington.
He said young people who doubt they will ever see a Social Security check may welcome a gradual change that preserves the program, even if it pinches higher earners.
"That might be more important to them," Copeland said, "because they would know what benefits they could count on for the rest of their lives."
A new proposal
A draft report released by Erskine Bowles and Alan Simpson, co-chairmen of the National Commission on Fiscal Responsibility and Reform, renewed the long-simmering debate over Social Security reform.
Their plan would gradually raise the retirement age for full Social Security benefits from 67 to 68 by about 2050 and to 69 by about 2075. Newly hired state and local government workers — who now mostly don't enroll in the system — would be drawn in.
The most immediate change would recalculate yearly cost-of-living raises starting in 2012 by tweaking the way inflation is measured. (Low inflation since the last raise in 2009 meant no COLA this year or next year.) The net result of the change would shave COLAs by an estimated 0.3 percentage points.
The plan also would speed up the gradual rise in a worker's income that is subjected to Social Security taxes. This year, earnings up to $106,800 are taxed at a 6.2 percent rate, which is matched by the employer. The Simpson-Bowles proposal would amount to a tax increase for those with six-figure incomes.
The plan includes hardship exemptions for those unable to work beyond age 62 because of physical problems. The formula for figuring benefits would become more "progressive" to help lower-paid people. And a new minimum benefit would be created for those who have worked much of their lives for minimum wages.
The goal is to avoid a more severe tax hike or benefit cut while keeping the program alive for younger generations.
On the present course, Social Security reserves will be depleted by 2037, and tax revenue at that time would cover only about 78 percent of promised benefits.
The Simpson-Bowles plan has not been approved by the full commission. It faces many hurdles and already has roused opposition, which could doom chances for Congress to act on it.
Inaction would be far worse, retirement experts say.
"If we do something now, it can be less dramatic than if we wait for a crisis when we might have to cut benefits or raise taxes by something like 20 percent," said John Laitner, executive director of the University of Michigan's Retirement Research Center. "Does it look like dramatic pain? Not at this moment. But these proposals will produce a loud debate."
The chairmen's report prompted AARP to deliver petitions from more than 900,000 Americans urging the commission not to recommend cuts to benefits.
Benefits and taxes
A focus group in Doral hosted by AARP this month reinforced the point that senior citizens depend on Social Security and fear change. South Florida retirees in the group said they could not withstand a benefit cut, and middle-aged participants said they are counting on Social Security for their retirement.
Some other proposals would preserve projected benefits but raise payroll taxes more steeply by subjecting a higher level of income to taxes.
U.S. Rep. Ted Deutch, D-Boca Raton, has proposed legislation that would phase out the earnings cap by 2017 and tax all employee income. He also proposed a way of figuring cost-of-living adjustments to take into account rising medical expenses faced by older Americans.
On the other side, Republicans are in no mood to raise taxes. In the midterm elections, some GOP candidates embraced a plan promoted by Rep. Paul Ryan, R-Wis., who is in line to become House budget chairman next year. His plan would scale back benefits for most future retirees, raise the retirement age and allow workers to invest part of their payroll taxes in personal investment accounts.