Social Security Needs Bipartisan Solutions
As the dust settles on the midterm elections and the new congress is set to be evenly divided, policymakers need to begin crafting bipartisan solutions to continue funding the Social Security program.
At $2.7 trillion and declining precipitously, the Social Security trust fund will be completely depleted by 2034. While some Republicans have proposed imposing sunset clauses for Social Security, the President has offered little in the way of practical solutions. In the runup to the elections, President Biden repeatedly accused congressional Republicans of planning to put Social Security on the “chopping block.” Yet he failed to offer his own ideas for closing the gap between payroll tax receipts and promised benefits. The president’s current plan — apparently to do nothing — will automatically cut benefits by 23 percent to all beneficiaries within the next twelve years.
If policymakers fail to act, they will face a stark choice: raise payroll taxes to make up the difference, or cut benefits across the board. To find a bipartisan solution, policymakers will need to avoid both hiking taxes on American workers and cutting benefits. Luckily, there are policy prescriptions available that both reduce costs and ensure financial security for retirees. It’s high time to consider them.
Social Security benefits remain an important source of income for millions of Americans. The Old-Age, Survivors, and Disability Insurance (OASDI) provides about 65 million Americans with benefit payments, including some 50 million retired workers and dependents of retired workers. While imperfect, social security benefits provide income protection for many seniors, with 1-in-4 Americans over 65 receiving 90 percent of their income from Social Security, and 1-in-2 getting at least 50 percent.
While many seniors remain dependent on the program, it has continued to drift far from its original intention of providing relief for the poor elderly. In 1955 there were almost 9 workers supporting every retired beneficiary, but as the population has aged, there are now only 2.8 workers for every beneficiary. This ratio is projected to fall again to 2.3 by 2038.
One obvious change that policymakers could make to ensure greater financial security for retired Americans would be to raise the retirement age to at least 68 and index age to longevity thereafter. When the Social Security program was rolled out in 1935, 65 was determined to be a suitable age for qualified recipients. Since then, life expectancy has increased by some 15 years, yet the retirement age to qualify for full benefits has only risen by 2.
Another potential policy adjustment would be to alter the metric for measuring inflation that determines the amount remitted to beneficiaries. The annual cost of living adjustment (COLA) is essential to keeping beneficiaries out of poverty. Since 1975 the COLA has been linked to the consumer price index (CPI-W). Every year benefits are adjusted upwards to keep pace with the rate of inflation, whereas in years of deflation benefits remain fixed.
Although the CPI-W was a suitable metric for measuring inflation five decades ago, it’s now outdated and notoriously faulty. Indeed, economists have found that this metric actually overstates the annual rate of price changes by 0.7 to 0.8 percentage points, contributing to the rapid depletion of funding.
Changing the COLA measure would improve the financial position of the trust fund while making miniscule changes to benefit adjustments. According to the Congressional Budget Office (CBO), “chained CPI-U provides a more accurate estimate of changes in the cost of living from one month to the next by using market baskets from both months”. Since 2000, annual chained CPI has averaged 0.28 percentage points lower than CPI-W.
For reference, the scheduled 8.7 percent COLA for 2023 will increase average monthly retirement benefits from $1,658 to $1,802 — a $144 increase per beneficiary. If COLA were instead based on chained CPI, the average monthly benefit would still increase to $1,798 — a $140 increase — only $4 less per month than if it were based on the CPI-W.
A third option would be for policymakers to tighten eligibility requirements for social security disability insurance (SSDI). The program has grown significantly to cover almost 12 million Americans, in large part due to loosening eligibility regulations and increasing claims of hard-to-determine disabilities. Policymakers could eliminate the medical-vocational grid guidelines and implement temporary and partial awards to install incentives and back-to-work opportunities for those who are deemed capable.
These are just a few of the myriad of bipartisan policy changes policymakers could contrive to resolve the looming Social Security crisis facing our country.
If policymakers are serious about supporting the most disadvantaged and ensuring the continued retirement support of the Social Security system, then they must come together to seek bipartisan solutions for its long-term sustainability. This is a can that cannot be kicked down the road much longer.
Jack Salmon is a Young Voices contributor and writer on economics. His commentary has been featured in a variety of outlets, including the Hill, Business Insider, RealClearPolicy, and National Review Online.
