For all the doom and gloom we’ve heard about the future of Social Security, it was encouraging to learn this week that the increasingly top-heavy government retirement plan could be fixed by “tweaking” the existing structure.
Of course, those “tweaks” suggested by a government panel all come with some painful impact, but it is possible that a less painful combination of a few of the ideas could keep the troubled benefits program afloat for another 75 years.
As we’ve lamented often in these pages, Social Security is looking down both barrels of a $5.3 trillion shortfall over that time period. If changes aren’t made now, the fund will run out of money by 2037. This year was the first since the 1980s that the fund had to tap its reserves as it paid out more than it collected in payroll taxes.
There’s been little political will to make substantive changes, but that needs to change as the nation is forced to wrestle with its long-term debt issues.
Against this backdrop, the Senate Special Committee on Aging presented what it called some modest suggestions. Its ideas now go to a bipartisan panel that President Obama has assembled and tasked with providing suggestions for tackling the nation’s enormous debt. The committee’s “tweaks” come in two forms: those that solve the Social Security problem outright and those that reduce the deficits at the margins.
We like some of the suggestions for their relative simplicity, but see others as unfair.
Among those that should be further explored:
• Raise the retirement age. When the federal government instituted the retirement program, it wasn’t intended to pay for decades of retirement. Set at 65, the age was near the end of the average lifespan. Now that we’re living so much longer, it makes sense to raise the retirement age. But even increasing the age to 70 from the current 65 to 67 range only gets you a third of the way there, so more work would have to be done.
• Remove the cap on the Social Security tax. Presently the government collects taxes on individual earnings up to $106,800. The Senate panel says that if the government collected on all earnings, but kept benefits tied to the $106,800-and-lower level, the deficit would evaporate. That’s not fair. But if you allowed the well-to-do to receive benefits commensurate to what they paid in, the deficit still would be cut by 95 percent.
• Increase the average number of working years. The way it works now, Social Security bases the benefits it pays to you on your 35 best earnings years. If the plan increased that metric to 40 years, 23 percent of the deficit goes away.
• Raise the tax rate. Now the government takes 6.2 percent of worker earnings each year, and the same amount from employers, with the self-employed forced to pay 12.4 percent. Raising that tax by 1.1 percent, to 7.3 percent, could zero-out the deficit. A 1.1 percent hike would be quite a hit, but if the percentage was reduced, and combined with other changes, it would be more palatable.
Here are a few ideas we’d rather not see pursued, even though we acknowledge solving this crisis calls for tough decisions:
• Reduce benefits. By cutting retirement payouts by 5 percent, the government would cut 30 percent from the deficit. However, we think it would be improper to cut benefits for those close to retirement who have been required to pay the tax for years.
• Ratchet down the cost-of-living adjustment. Right now benefits are increased by the year’s inflation. Reducing that by 1 percentage point would cut 70 percent from the deficit. But it also places a hardship on those no longer working and we don’t like the idea for the same reason we don’t like cuts in benefits.
Each of the ideas will face opposition from somewhere. Senate committee chairman Herb Kohl conceded that “many members of the committee, including myself, do not support and actively oppose many of the options.”
But Social Security and other entitlements must be made more fiscally stable and that means some discipline, and pain, has to enter the picture. Our elected leaders need to take this report seriously, and begin to act on some of its recommendations.
