Eighty years old today, Social Security has been the nation's bedrock safety net, lifting older Americans out of poverty, providing disabled adults with a modest income and sustaining families who lose bread-winners. An accounting deadline next year and a presidential race will thrust Social Security's financial health back into the national spotlight. Some reforms are needed, but not sweeping ones. Congress should filter out political posturing and fortify Social Security for current and future recipients.
Nearly 60 million Americans receive Social Security benefits, two-thirds of them retired workers and one-third a mixture of disabled adults, widows, widowers and dependents. These are modest payments — averaging $1,223 a month — but two-thirds of retirees still derive at least half their income from Social Security. Forty percent would live in poverty without it. It also supports about 6 million children.
Social Security taxes — shared by workers and employers — pay current benefits and flow into two trust funds to prepare for baby boomers entering retirement. The trust fund designed for disabled adults is predicted to run dry by late 2016, reducing already slim benefit checks by 20 percent unless Congress tweaks the system soon. President Barack Obama wants to redirect a slice of future tax revenues from the retirement trust fund into the disability fund. Such tax flow shifts have occurred 11 times in the past — in both directions — to keep both funds solvent. Recent improvements in Social Security's overall health provide some leeway. House Republicans have so far rejected such reallocation, heading down an all-too-familiar path of budgetary brinkmanship, in which each side accuses the other of abandoning vulnerable citizens. This clamor should not obscure the need for reasonable reform to assure Social Security's long-term security.
Without changes, the combined retirement and disability trust funds are predicted to run dry in 2034, causing a 21 percent drop in benefits. This shortfall represents about 1 percent of GDP over 75 years and can be managed by reasonable adjustments. The most compelling would be raising the cap on taxable income, now set at $118,500. A Social Security overhaul in 1983 set a wage cap designed to exempt only 10 percent of total income from taxation. With growing income inequality, 17 percent of total income is now exempt. Eliminating the cap would likely cover 70 percent to 80 percent of the long-term shortfall. Social Security is a progressive system in that low wage retirees receive a higher percentage of their work income. But high income retirees also make out, in that larger contributions create larger benefits. Eliminating or significantly raising the cap would be an equitable change.
The full-benefit retirement age is scheduled to increase to 67 by 2027. Jeb Bush, Marco Rubio, Chris Christie and other Republican presidential candidates have pushed for extending the full retirement age even further to reflect longer life expectancies. That benefit reduction would cover far less of the shortfall than eliminating the wage cap, and it should not be passed without protections for low-income workers and those who perform physical labor and cannot always delay retirement. But judicious tweaking of the full retirement age at least holds more promise than reckless privatization schemes floated by the right in past elections.
Improving Social Security's long-term stability will require compromise between those who would cut benefits, those who would increase taxes and those who would enhance benefits. Delaying reasonable change makes the choices more difficult.