Don't let Social Security trust fund run dry in 2033
President Ronald Reagan and House Speaker Tip O'Neill chat at the signing of legislation to reform Social Security through higher taxes and a later retirement age. Economist Alan Greenspan, left, served as leader of a panel on the issue. With them are congressional leaders including Sen. Bob Dole of Kansas (April 20, 1983). Credit: AP
Thirty years ago, a panel called the Greenspan Commission held its first meeting to discuss what to do about Social Security, which was running out of money.
President Ronald Reagan appointed the commission because the topic was such a political hot potato. Members were chosen to represent labor, business and the elderly. Also included were chairman Alan Greenspan and old pros like Sens. Daniel Patrick Moynihan (D-N.Y.) and Bob Dole (R-Kan.). Their job was to reach a compromise -- but keep quiet about it until after the 1982 election.
Fast-forward to 2012 and, as Reagan might have said, here we go again.
A new report by the Social Security trustees finds that the system's trust fund will run out of money by 2033, three years earlier than had been thought, and the longer we wait to do something, the costlier a fix will be. So the time to act is now. Social Security is far too important for political gamesmanship.
Today two-thirds of retirees get at least 50 percent of their income from it, and for half that group Social Security accounts for nearly all they live on. The decline of traditional corporate pensions and the loss of so much home equity in recent years means Social Security will be even more important in the future.
The system's problems are pretty much the same today as in the Reagan years -- and for that matter, during the Carter years, when Congress kept it going by raising the tax and cutting benefits. People are living longer, which means they collect more. And they're having fewer babies, which means fewer workers to support each retiree.
But today there are the additional problems of slow-growing wages and disproportionate gains by top earners. The cap on income subject to the payroll tax (which pays for Social Security) rises each year with average income; slow wage growth has meant that this cap has been rising more slowly than the Greenspan panel anticipated. The highest-paid Americans, meanwhile, have been reaping a greater share of income, and because these earnings are above the $110,100 taxable cap, the Social Security trust fund isn't gaining from them.
Fortunately, figuring out how to shore up the program isn't hard. Uncle Sam could raise the cap on taxable earnings to $220,000, raise the tax rate from 6.2 percent to 7 percent, and raise the retirement age a tad from the current 66 (it's already headed for 67 in the years ahead). The government could also change how cost of living increases are calculated, as some economists suggest, to more accurately reflect how people live. Voila, the system would be safe for decades.
The real problem isn't what to do about Social Security; it's how to get anything done at all. Washington is a much more partisan place than it was 30 years ago, when politicians accepted the findings of bipartisan panels and Republicans would support tax hikes. The Greenspan Commission urged both higher taxes and benefit cuts. The resulting legislation sailed through Congress -- which went even further by raising the retirement age, a huge step toward putting the program on a sound footing. In signing the bill, Reagan said: "The essence of bipartisanship is to give up a little to get a lot."
We can learn a thing or two from the commission's experience. First, basic changes like reducing payouts to the affluent or letting people invest their Social Security money in private accounts were off the table, since they would make compromise impossible. They're a bad idea anyway. Second, Social Security was already bound up with Medicare and Medicaid in the battle over "entitlements." But the problems of the national pension system are simpler, and should be solved on their own.
President Barack Obama should seize the initiative by proposing the necessary reforms now, exploiting the great leverage offered by the coming election. The system enjoys overwhelming support from the American people, after all, so opponents can either fall into line or risk voter wrath. Unlike 30 years ago, compromise might be easier before this election rather than after.
