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Editorial: Fixing Social Security

There’s a right way to “fix” the Social Security system, and there’s a wrong way.

Before we get to those, a little review is in order – plus some context on the unique role Social Security plays in American life, particularly in the framework of our current economy.

Social Security is unlike most other federal government programs under critical assault or viewed as ineffective. It’s not poorly run (see the Veterans Administration). It’s not in the crosshairs of an ideological debate over the role of government (see the Export-Import Bank). Nor is it the embodiment of a now-discredited public policy imperative that went too far (see American prisons, stuffed to the rafters with nonviolent offenders, many of them violators of minor probation offenses).

No, Social Security’s financial travails are almost entirely a function of demographics. Since the program’s inception in 1940, the ratio of covered earners who are paying Social Security taxes versus the number of beneficiaries has changed dramatically; it’s gone from 8.6-to-1 in 1955 to 2.8-to-1 in 2013. Simply put, the money going into the main trust fund is no longer keeping up with what’s going out. The system’s once-vast surplus is being drawn down and the main account – the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Fund – is projected to become depleted in 2034. At that point, there will be enough money to account for 79 percent of benefits payable.

Wrong solutions

The men and women running for president – as have many congressional politicians – are fulminating widely on the need to deal with “entitlement reform,” to find a way to make Social Security, and for that matter Medicare, financially viable. Many of their prescriptions, vague as they are, call for retrenchment on future benefits, delays in what’s called full retirement age or some sort of means-testing for beneficiaries.

We think those are misguided ideas.

The reality is that Social Security benefits have become more urgently needed by more and more Americans. The number of private-sector workers who can count on a defined pension has shrunk dramatically, from 62 percent of workers in 1979 to 7 percent in 2011, according to the Employee Benefits Research Institute. To be sure, participation in 401(k) and other defined-contribution plans has filled in some of that gap. But for many Americans pressed with paying a rising share of their health insurance costs, picking up the tab for more of their children’s higher education bills and dealing with a no-pay-hike salary climate, saving for retirement often has had to take a back seat to more immediate needs.

The Social Security Administration says that, among elderly Social Security beneficiaries, 22 percent of married couples and about 47 percent of unmarried persons rely on Social Security for 90 percent or more of their income.

To us, the notion of cutting benefits for future recipients to cure the Social Security system is morally abhorrent.

The lessons of 1983

The best model for fixing Social Security is to look at what happened the last time the two political parties compromised to make the system solvent. While the 1983 plan agreed to by then-President Ronald Reagan and House Speaker Tip O’Neill has been mythologized a bit (this was not a deal reached over a friendly drink and with the strains of orchestral music in the background), it was grounded in reality.

The key provisions of the agreement – an increase in the payroll tax borne by both employees and employers, a modest hike in the retirement age and an annual escalation in the amount of income covered by Social Security withholding – made the system viable for decades. And, more importantly, it protected benefits.

A Gallup poll taken this summer found that Americans favor raising Social Security taxes over cutting benefits 51 percent to 37 percent as a solution for repairing the program’s finances.

There certainly are reasonable debates to be made about the right mix of ingredients that should go into any prescription. But we should be clear and honest on one point: There is no sensible solution to our current Social Security quandary that does not involve higher taxes. None.