A draft report by President Barack Obama’s bipartisan debt reduction commission has set the tone for a rational national debate over what to do about Social Security. The bipartisan commission has tentatively proposed important adjustments in the financing and payout of the system. But, most important, the commission assumes that Social Security can be fixed and is here to stay.
This should be welcome news to the many young Americans who have been persuaded that they will never get the promised monthly benefits. Also to the many current beneficiaries who have been led to worry that the whole system will come crashing down. President George W. Bush stirred these anxieties by indicating that Social Security was “headed toward bankruptcy” and that “staggering tax increases” were coming unless Congress took drastic action.
The commission avoided that catastrophic tone. It made no mention of his proposal, a favorite of conservatives, to partly dismantle the government system by letting consumers gamble with their future benefits through private investment accounts. Wall Street would love that massive influx of money, but the recent crash was a fresh reminder that gambling is risky.
Demographic changes mean that the program needs adjustment. A lowering birth rate and increasing life expectancy are reducing the ratio of paying workers to retirees. Revenues from the 6.2 percent tax on employees and employers still exceeded total benefits last year, for an annual surplus of $121 billion, but estimated expenses will outpace revenues by 2015. Between that year and 2037, Social Security can draw from other tax sources.
To go beyond that date, the Congressional Budget Office reported this year that it would cost an additional $90 billion a year now to finance Social Security until 2085. That would be less than current spending in Iraq and only one quarter of the revenue lost each year because of the Bush tax cuts. It said about the same result could come from raising the employer-and-employee payroll tax 2 points, from 12.4 to 14.4 percent.
The commission’s draft report would reduce future Social Security benefits for most retirees but increase them for low-income people. This tinkering with a government commitment will trouble middle-class people who rely on the benefits in retirement. Any reduction in annual cost-of-living increases presents a similar hardship. Alternatives in the report are to gradually raise the retirement age to 68 by 2050 and 69 by 2075, in recognition of increasing longevity, and increasing taxes on wealthier people beyond the present annual wage maximum of $106,800.
The recommendations may change by the commission’s Dec. 1 deadline. But so far, the group has opened the way for a sensible and practical fix of a system that is part of the basic safety net in uncertain times.