Whether a bipartisan congressional committee designed to find up to $1.5 trillion in deficit reduction over the next decade manages to compromise on entitlement reform or not, Social Security has to change. The retirement program is running out of money.
As part of last week’s agreement to raise the nation’s legal debt ceiling, Democrats and Republicans in Congress will form a special committee tasked with identifying more than a trillion dollars in “cuts” to both discretionary and mandatory federal spending. The former includes all spending that is supposed to be appropriated by Congress every fiscal year, including defense, education, housing and infrastructure. Mandatory spending refers to entitlement programs like Medicaid, Medicare and Social Security which are basically on autopilot. Unless they are significantly reformed, analysts predict that these programs could go bankrupt within a matter of decades.
After the Congressional Budget Office warned earlier this year that public health support and pension programs were likely to grow at an unsustainable pace in years to come, the trustees of these decade-old safety nets delivered a series of dire warnings in May which made the case for reform all the more pressing.
The Social Security trust fund is projected by its trustees to last until 2036. According to CBO estimates, it won’t be exhausted before 2040 but once the fund is depleted, the annual payroll taxes that pay for the program will only be sufficient to cover 75 percent of the retirement benefits that it is required to pay seniors.
In 2010, Social Security spent $49 billion more in benefits that it took in from its payroll tax. This year, the pension program will likely spend $733 billion or one-fifth of the federal budget with a $46 billion deficit. Between today and 2085, the pension program’s trustees estimate a total shortfall of $9.1 trillion.
Some 56 million Americans receive Social Security benefits this year. When the program was created in 1935, the earliest retirement age was 65 — one year above the average life expectancy. Although Americans grow much older on average now, beneficiaries can begin collecting at 62 and might well live in retirement for up to two decades!
Meanwhile, the base of support from workers paying into the system has shrunk dramatically. In 1950, there were sixteen active workers paying for every retiree. Today, the ratio is three to one and there will be even fewer workers compared to seniors in years to come. Obviously, doing nothing is not an option.
The chairmen of the president’s fiscal commission proposed relatively modest changes to the pension system last year that would make it solvent for the next half century. Former Republican senator Alan Simpson and Democrat Erskine Bowles, a former White House chief of staff, suggested to raise the retirement age by one month every two years after it reaches 67 under current law to achieve up to $4 trillion in savings. The retirement age would reach 68 around 2050 and 69 by 2075.
They also wanted to allow retirees the choice of collecting half of their benefits early and the rest at a later age to support phased retirement options.
Dozens of Democratic lawmakers immediately urged the president to protect Social Security after Simpson and Bowles released their findings. “If any of the commission’s recommendations cut or diminish Social Security in any way, we will stand firmly against them,” they pledged. Then House speaker Nancy Pelosi said that any deficit reduction plan “must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare.”
The Democratic leader in the Senate, Harry Reid, told NBC in January of this year that Social Security is “not in crisis. This is something that’s perpetuated by people who don’t like government,” he added. “Social Security is fine.”
Maryland Congressman Chris Van Hollen agreed. “We’re not going to balance the budget on the backs of Social Security beneficiaries,” he told CBS News in February. The president has even vowed to preserve Social Security “forever.” He denounced privatization as “an ill conceived idea that would add trillions of dollars to our budget deficit while tying [people’s] benefits to the whims of Wall Street traders and the ups and downs of the stock market.”