Social Security

Averting a Fiscal Crisis

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CRFB has compiled a brief background on the scope of our nation's fiscal challenges and the drivers of our debt and deficits, while outlining some of the types of solutions available to address the problems. This Powerpoint is meant to offer an objective, non-partisan view of our country's fiscal situation as an educational tool meant to help foster open and honest debate about these issues.

Op-Ed: Social Security Needs to be Fixed. So Just Do It.

CNN Money | March 7, 2011

If there is one thing we know in "Budgetworld," it's that the largest entitlement programs have to be reformed. Social Security, Medicare and Medicaid are growing at unsustainable levels because of the aging population and growing health care costs.

Without changes, entitlements will squeeze out other spending priorities. They will push up tax rates, and they will create a drag on the economy. Basically, they will bust the budget.

Social Security is the easiest to fix since, unlike health care, we actually know what will work: It boils down to some combination of benefit reductions and revenue increases.

And the sooner the better. As the Social Security trustees say year after year: "The projected trust fund shortfalls should be addressed in a timely way so that necessary changes can be phased in gradually and workers can be given time to plan for them."

Tough to argue with that. Yet, progress has been, well, nonexistent.

Could this year be different? Maybe.

There does appear to be more momentum for serious entitlement reform. Yet getting down to the business of what specific changes to make is frustratingly slow going.

Right now Congress and the White House are acting like fifth graders at the school dance: "You go first. No, you go first." Next thing you know, the boys and girls are in a shoving match! (Folks, don't try this at your offices; it is unlikely to be well-received.)

House Speaker John Boehner has said he's ready to tackle the problem, but he hasn't offered specific proposals. And President Obama's budget made only a nod toward Social Security reform, laying out some rather weak principles:

-- Any reform should strengthen Social Security for future generations and restore long-term solvency. OK, good.

-- The administration will oppose any measures that privatize or weaken Social Security. Hmmm. So that's what not to do.

-- While all measures to strengthen solvency should be on the table, the administration will not accept an approach that slashes benefits for future generations. More on what not to do. 

-- Basic benefits should not be reduced for current beneficiaries. Seriously, more on what not to do?

-- Reform should strengthen retirement security for the most vulnerable, including low-income seniors. I agree, but that will actually cost money. 

-- Reform should maintain robust disability and survivors' benefits. Yup, another non-suggestion for fixing the system.

It's like starting the interview for a new job by insisting on a high salary, lots of perks, a corner office and easy assignments ... but insisting that everything else is on the table.

The administration's excuse: Any real recommendations would quickly become political targets, and that would actually make reforming Social Security more difficult. While they might have a point, it's tough to see how this strategy meets the test of leadership.

House Republicans have indicated they plan to include some entitlement reforms in their budget.

And Rep. Cynthia Lummis, a Wyoming Republican elected in 2008, just offered a plan to slowly, slowly, increase the retirement age so that today's four-year-olds would retire at 70 instead of 67. I talked it over with my young daughter, and she's OK with it; no need for histrionics on her behalf.

The next step is for policymakers to come out with a plan that would not only increase the retirement age but also reduce promised benefits for the reasonably well-off, fix how benefits are indexed for inflation and raise revenue.

None of this will be that hard. In fact, future retirees will still collect more than those today do, and we can even afford to increase benefits a bit for those who depend on Social Security the most.

If an initial plan isn't bipartisan, and Republicans are left to go it alone, it is likely they will offer Social Security reform plans that only cut spending. Is that where we should end up? No. Revenues will have to be part of the fix, but hey, anything at this point is better than nothing.

The real test now will be how the White House responds to whatever is offered by the Republicans.

If the president chooses to go the "see, I told you so, those guys just want to steal granny's benefits" route -- rather than the "that's one approach, how about this?" option -- Social Security reform will fail again.

But if instead he acknowledges that changes have to be made, congratulates those who are courageous enough to get specific and starts real bipartisan discussions, we just may be on to something.

It is time for both sides to agree to a cease fire. Either embrace the other side's proposals or offer alternatives. Don't attack them.

Imagine what could get done if those who profess to care so much about Social Security worked together on a plan to save it.

Op-Ed: The $2.5 trillion Slush Fund

CNN Money | August 9, 2010

The Social Security trustees released their updated projections last week detailing the financial health of the nation's retirement system.
Bottom line: The program is running a deficit this year, and is projected to run growing deficits after 2015. But it will have money in the trust funds to pay full benefits until 2037.
Some maintain that the findings reinforce the claims that Social Security is basically on sound footing -- no need to rush to make changes and nothing a few minor tweaks won't fix. Others say the need to make changes has grown even larger.
I'm in the latter camp: Changes to Social Security must be made -- and the sooner the better.
The difference, in many ways, boils down to how you think about Social Security's "trust funds."
The trust funds hold the assets that have accumulated within Social Security from the annual surpluses the program has built up over the years. Right now, the funds (there is one for retirement and one for disability) have a whopping $2.5 trillion.
That's pretty fabulous news when looking at Social Security in isolation. The program can make good on all of its promises for a quarter of a century, first by relying on the interest owed to the funds, and then by redeeming the assets in them.
The big problem is the other side of the ledger. When Social Security runs a surplus, the extra money is used to purchase U.S. Treasurys, and the dollars are used to help finance the rest of the government, which is almost always running a deficit.
So when those assets to Social Security -- and liabilities to taxpayers -- come due, we have to find a way to raise the money, which has already been spent.
You know what that means: Raising taxes, cutting spending or borrowing. And because the downturn has drained Social Security surpluses more quickly than expected, that strain on the rest of the budget will begin even sooner.
Not our problem, say defenders of the trust fund concept. The money is owed to Social Security; it must be paid to Social Security. Legally, that's true.
But the entire federal budget needs to be rethought as the nation stares at the mountain of debt accumulated from years of our not paying our bills.
And the question is how?
Let the young pay it back
The unfortunate reality is that the trust funds proved to be ineffective at saving the money meant for Social Security in any economically meaningful way. Having used those Social Security surpluses as a slush fund for the rest of government has indeed complicated things.
First, it allowed Congress to keep all other taxes lower than it otherwise would have been. By using Social Security money to fill the gap, current and soon-to-be retirees got an effective discount on their share of the cost of government. By contrast, the responsibility for repaying the trust funds that they used is going to fall fully on today's younger workers. Not the best deal imaginable -- at least for those on the other side of the deal.
We urgently need to shift our attention to what to do to strengthen Social Security. There are a number of sensible solutions:
  • gradually raise the retirement age since we are living longer;
  • slowing the growth of benefits for high earners to preserve them for those who depend on the program;
  • correct the inflation formula, which overestimates annual cost of living adjustments.
The rhetoric surrounding the issue is likely to heat up. Instead of trading accusations or competing over promises of what not to do to fix the program, policymakers from both parties agree that changes need to be made to strengthen Social Security and rebalance the budget. We should get started as quickly as possible.
After all, as the program trustees said: "The projected trust fund shortfalls should be addressed in a timely way so that necessary changes can be phased in gradually and workers can be given time to plan for them. Implementing changes sooner will allow the needed revenue increases or benefit reductions to be spread over more generations."
That is a point everyone should be able to understand.


Copyright 2010, CNN

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