It's Time to Reform Social Security

There have been a number of pieces lately that have offered perspectives on how to view the recent debate surrounding the Social Security program. Is it part of the budget or not? What happened to the money in the Trust Fund? Does Social Security add to the deficit? Different authors frame the debate in different ways, but many have come to the same conclusion: Social Security needs to be reformed -- and quickly.

Our recent paper attempted to shed light on two differing views of Social Security: one being that it is a stand-alone program with a trust fund, the other being that it is part of the overall federal budget and adds to the deficit. We concluded that either view is valid, depending on your perspective, but that they both should lead to the same conclusion: it's time to reform Social Security. If you look at Social Security as a stand alone program, for example, it faces a substantial actuarial shortfall and is 25 years from insolvency. If you look at it as part of the budget, it is adding considerably to the overall deficit.

In a recent piece, CRFB board member Gene Steuerle came to a similar conclusion, arguing that the trust fund has basically no effect on the generational and economic impacts of the program. As Steuerle writes:

"Those who say we can wait 20 years to address Social Security's solvency even though the system will soon be spending over 30 percent more than it collects in taxes have turned a blind eye to current and growing deficits. They seem to think that (1) we can count on income tax payers to raise more taxes, or we can cut other spending, or we can borrow more and pay interest to the trust funds as they move toward decline; or that (2) we can draw down assets (say, by borrowing more from China to pay off bonds in the Social Security trust fund) without consequences. This is the mindset of a household that has saved $50,000 for retirement but has $300,000 in credit card debt and keeps charging more every year without paying down the balance."

From another perspective, Social Security Trustee Charles Blahous wrote a Washington Post op-ed arguing that those who view Social Security as a stand-alone program do it a great disservice by delaying reform -- and may ironically cause the program to be seen as merely another part of the budget. Blahous shows that if we wait until 2031 to reform the program, the long-term problem would be twice as large as in 1983 and the short-term problem more than three times as large. Blahous argues that politicians will not be able to make changes that large, saying:

Faced with a choice between wrenching benefit cuts and/or payroll tax increases vs. tearing down the wall between Social Security and the rest of the budget, legislators will tear it down. And that would be the end of Social Security as we know it. No more separate trust fund. No more special parliamentary protections. No longer would benefit payments be shielded from the chopping block by the rationale that they were funded by separate payroll tax contributions. Social Security would be financed from the general revenue pool, and its benefits would thereafter have to compete with every other federal spending priority. 

We also can't help but noting that, even as a legal matter, the program does not actually have until 2037 -- 2037 is the projected insolvency date if we were to combine the Old Age and Disability trust funds. Barring legislative action to allow interfund borrowing, CBO now projects that Social Security's Disability trust fund will be exhausted by 2017. Current law, therefore, calls for a 19 percent benefit cut for all disabled workers in only 6 years; that is not an acceptable outcome.

There are different ways to look at Social Security, but no matter how you do the program must be reformed. Acting now will allow tax and spending changes to be made gradually and give beneficiaries more time to plan and adjust. Those who insist that any Social Security reform is an attempt to "balance the budget on the backs of America's seniors" or just another excuse to "slash benefits" aren't doing the program any favors, and the sooner everyone realizes this the better. Rather than fighting over the best way to view Social Security, lawmakers should start coming up with actual reforms to fix it.