WASHINGTON, Nov. 10 – A long-range financing plan for Social Security with targeted improvements in benefits is an affordable approach to Social Security reform that would have broad support from the American people, according to a new brief released by th National Academy of Social Insurance (NASI) on Wednesday.
Such an approach would secure Social Security for the future, provide peace of mind to workers and young Americans that they can count on the program, and demonstrate that Washington is listening to what the public wants, according to the new policy paper, “Strengthening Social Security for the Long Run.”
“Opinion surveys consistently show that the public, regardless of political affiliation, recognizes Social Security is more important now than ever,” said NASI President Janice Gregory. “As Americans live through a time of great economic uncertainty, they say they want to reinforce rather than weaken the program.”
NASI is a nonpartisan organization made up of the nation’s leading experts on social insurance.
In charting Social Security’s future, the report says it’s useful to remember how Congress addressed the immediate funding crisis the program faced in 1983. Following the recommendations of the bipartisan commission chaired by Alan Greenspan, lawmakers enacted a reasonably balanced mix of contribution increases and reductions in benefits to get Social Security safely through the 1980s.
But when it came to closing out the long-term deficit then facing the program, Congress added only a further benefit reduction by phasing in an increase in the retirement age from 65 to 67. That benefit reduction is still being phased in today. Congress did not add any new revenue, even though providing future revenue had been an accepted practice in the past.
“In current policy discussions about the long-term financing of Social Security, reforms enacted in 1983 often are held up as a model of balanced political compromise. But that’s not the whole story,” said NASI Vice President Virginia Reno.
Reno served on the staff of the Greenspan Commission. Gregory was instrumental in the work of the House Ways and Means Committee when the reforms were enacted.
Unlike in 1983, the Social Security program today does not face a short-term financing problem. Moreover, the percent of the population receiving Social Security benefits will increase from about 17 percent today to 25 percent in 75 years, but the cost of the program as a percent of the economy will increase only from about 5 percent to about 6 percent.
The policy brief said there are at least three reasons to be concerned about the adequacy of Social Security benefits in the future. First, benefits today are modest – about $14,000 per year on average in 2010 – but are the main source of income for most of the elderly. Second, benefits as a percent of prior earnings are projected to decline in the future. Third, other sources of retirement income are becoming less secure and less adequate.
Making modest improvements to address these concerns and covering the projected long-term shortfall facing Social Security would require revenue increases equal to slightly more than 2 percent of taxable payroll over 75 years, according to the authors.
There are many ways to raise that revenue, including lifting the FICA contributions cap to again cover 90 percent of earnings as Congress intended and scheduling potential FICA rate increases for points in the distant future when additional funds would strengthen the program.
“It’s possible to design a financing plan for Social Security that is broadly affordable, consistent with the program’s history and principles, and capable of strengthening the program for the long run,” Gregory said. “That would free policymakers to consider strategies to improve the adequacy of Social Security benefits rather than cutting them.
“Social Security’s long-term funding challenge can be met in ways that give Americans greater confidence in their own economic future,” said Gregory, who released the paper at a Capitol Hill briefing.
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.