Changes enacted by Congress in the 1980s to ensure the long-term solvency of Social Security will cut retirement benefits by 19 percent for workers born in 1960 and later, and more cuts could undermine the basic economic security of future retirees, a new report said today.
The report, released by the National Academy of Social Insurance, said modest benefit improvements and revenue increases are affordable, have broad public support and can close Social Security’s long-term financing shortfall without more benefit cuts.
“Social Security benefits are already being cut more than many people realize,” said Virginia Reno, NASI’s vice president for income security and a co-author of the report. “Cutting benefits further is not necessary to preserve Social Security for future generations. Other alternatives merit consideration by policymakers.”
NASI is a nonpartisan organization made up of the nation’s leading experts on social insurance.
As policymakers consider calls for further retirement benefit cuts, the NASI report said it is important to remember that the Social Security amendments passed by Congress in 1983 relied far more on benefit cuts than new revenue to balance the system’s long-term finances. Those amendments changed Social Security by:
Gradually raising the full-benefit retirement age from 65 to 67, a change that results in a 13.3 percent reduction in benefits.
Taxing part of benefit income, which results in a 5.1 percent benefit cut.
Delaying the cost-of-living adjustment by six months, resulting in a permanent 1.4 percent cut.
“The first two cuts are phasing in gradually,” the report stated. “The 13.3 percent cut affects new retirees born in 1960 and later; they will begin reaching age 65 in 2025 and age 90 in 2050. By then, almost all of the elderly will have experienced the full 19 percent reduction in Social Security.
“The 1983 changes are often described as a balanced plan of benefits cuts and contribution increases,” the report noted. “But that is not the case for the long run: the benefit cuts taking place in this century were not balanced by any new contributions.”
Monthly Social Security benefits are modest today, averaging about $14,000 a year, but two in three elderly beneficiaries count on their benefits to provide at least half of their total income. In the future, rising Medicare premiums, which are deducted from benefits, will continue to erode their value.
Although Social Security beneficiaries will increase as a percentage of the population from 17 to 25 percent between 2010 and 2085, Social Security payments as a percentage of gross domestic product (GDP) are projected to rise only from 5 to 6 percent during the same period.
The report finds that by adopting a balanced long-term revenue plan it is possible to cover the projected shortfall facing Social Security while making modest improvements in the program for three vulnerable groups – low-paid workers, the oldest beneficiaries and students who lose parental support due to death or disability. The revenue plan could include gradually lifting the cap on FICA payroll tax contributions to again cover 90 percent of earnings as Congress intended and scheduling small FICA rate increases over 20 years starting in 2015.
Boosting revenues would have the support of the American public, the report states, noting that in poll after poll, Americans across political parties and age groups have affirmed that they would rather pay more than see Social Security benefits cut.
The National Academy of Social Insurance is a nonprofit, nonpartisan organization made up of the nation’s leading experts on social insurance. Its mission is to promote understanding of how social insurance contributes to economic security and a vibrant economy.