Social Security Reform & Entitlements

How can the U.S. government keep its promises to senior citizens without going further in debt? Social Security and Medicare, both of which the recipients are entitled by law to receive, total 64 percent of U.S. federal spending, and that number is growing rapidly as our society ages. Besides these entitlements, other major budgetary components are defense, which always must come first, and interest on the national debt, which we have to pay. Those three things comprise all but 16 percent of federal outlays. To balance our budget, we simply must reform Social Security and Medicare, raise taxes, or reduce spending on everything else even more.

Nobody is going to “take away Grandma’s Social Security.” Instead, as with anything big in Washington, fixing Social Security requires bipartisanship and consensus.

The first persons eligible for Social Security benefits and Medicare were born in 1900. Today, the average American lives 30 years longer than did those born 123 years ago. When these entitlement programs started, there were 42 employees paying in to support every 65-year-old retiree. Now there are between two and three.

With the trust fund for Social Security running out in 2033 or 2034, and the Medicare trust fund being depleted by 2031, something must be done, and very soon. 

If politicians remain paralyzed, what they are deciding by implication is that all current and future benefits should just be cut significantly, automatically, and across-the-board. That is the opposite of “preserving” Social Security.

On this issue, the analysis primarily involves a common balance between the principles of protecting the vulnerable and limited government. In addition, the leadership principles of integrity and honesty come into play.

Solution options include: (1) make future retirees wait longer to start receiving Social Security, so that all current recipients will continue their full benefits without reduction; (2) build up the trust fund now by forcing workers to pay in more than they currently do; (3) reduce the payouts to all future recipients across the board. When there is not enough money to go around, someone has to get less, wait longer, pay in more, or all of the above. (Another choice barely worth mentioning would be to use regular tax dollars to continue full Social Security payments and Medicare payments after the trust funds are empty. That seems to be a recipe for an entire federal government to become much, much further in debt than the $31.4 trillion it already is.)

By law, the third option above will happen automatically if Congress does not act before the trust funds vanish. Clearly, however, Option 3 lacks honesty and integrity, as it retracts promises made to current and future senior citizens who have relied on those promises when making retirement and financial decisions. Therefore, politicians who do nothing to solve the problem are the ones who should be accused of “cutting” Social Security for Grandma and all current seniors.

What Congress should do instead is reform the program now to ensure full payments in the future. The last major reform was in 1983.

With Social Security today, reform means, first, that we should raise the required contribution to cover all earned income (right now the obligations of both employers and employees to contribute stop when one’s annual earnings reach $162,000). This is a better way to build up the trust fund than increasing the percentage paid by all employees because, for example, the person who earns $50,000 per year is much more likely to notice a larger paycheck reduction than the person who earns $3 million per year.

Also, in phases, we should raise the full retirement age to 70 for those who still have years to prepare for that change (for example, everyone born after 1970), with those future recipients ineligible for early withdrawals until age 65 (currently it is 62.5).

Another helpful move would be to allow recipients to forgo all or part of their payment, giving them a tax deduction for the entitlement not taken. Generous, well-off Americans concerned with preserving Social Security for future generations are likely to do this.

In short, there are several principled, sensible solutions to this very real problem, and America needs principled, sensible politicians to lead on this issue.