Pronouncements from both sides of the aisle that we must “protect” Social Security from any fiscal reforms obscure a hard truth: A vote for the status quo is a vote to cut benefits by nearly a quarter for every single beneficiary starting in just over 10 years.
It is thus heartening that a bipartisan group of senators is leading the effort to strengthen and modernize the program that reaches 67 million Americans each month. The effort’s success will depend on the willingness of policymakers and the public to rise above the current political rhetoric filled with unproductive absolutes such as no tax increases or no benefit cuts. Inevitably, some of the proposals entertained by the lawmakers will be more controversial than others, but critics should withhold judgment until they can be analyzed holistically. We should applaud their willingness to confront reality and put forward legislation to address the serious challenges ahead.
Social Security is the foundation on which most Americans build their retirement. It pays benefits to retirees, their families and people with disabilities, lifting millions out of poverty each year.
The program’s finances, however, are problematic — a fact underscored by the recently published annual trustees report. Unless Congress acts, the primary trust fund — the account that collects payroll taxes and pays out monthly Social Security checks — will only be able to pay scheduled benefits until 2033, after which its reserves will be depleted and all beneficiaries will face a 23 percent cut. At the same time, Social Security’s tax and benefit structure is outdated, disincentivizing workforce participation while failing to provide adequate financial security to those who rely most on the program.
But restoring Social Security’s fiscal health and enhancing benefits for vulnerable beneficiaries are not mutually exclusive goals. In fact, tackling them together is the best way to attract the necessary bipartisan support for Social Security reform and ensure the program can adequately support future generations.
For several decades after policymakers last reformed Social Security in 1983, the program’s income exceeded its expenses, generating large trust fund surpluses. In recent years, however, annual benefit payments began to surpass income.
One big reason is demographics. The ratio of workers paying Social Security payroll taxes to people drawing benefits has dropped from four-to-one in 1965 to just under three-to-one in 2022. That ratio is projected to drop to less than 2.5-to-one by 2030 as baby boomers continue to retire, people live longer and working lives have not proportionally increased.
At the same time, Social Security’s tax base is shrinking as a share of national earnings. Social Security’s payroll tax, which covered 90 percent of total earnings in 1983, is projected to cover just 80 percent this year, as income inequality continues to grow and more earnings fall above the taxable cap.
In 2016, a Bipartisan Policy Center commission recommended steps to make Social Security solvent and modern. Among other reforms, the commission proposed restructuring the benefit formula to make it more progressive and better reward continued work; establishing a new minimum benefit to help those with low incomes and reduce elderly poverty; gradually increasing the retirement age to reflect increases in life expectancy; and bringing in more revenue, partially by restoring the taxable base to its prior level. Once fully phased in, average households in the bottom 40 percent of earners would collect higher benefits, while middle earners would see benefits at roughly their currently scheduled levels. Nearly all benefit savings would come from those in the top 40 percent in lifetime earnings. Importantly, just about everyone would be better off than they will if Congress fails to act.
The commission recommended this balanced approach seven years ago though, and Social Security’s challenges have since grown while the time to address them has shrunk. To restore long-term solvency now, policymakers will have to phase in larger changes at a faster pace — or perhaps more realistically, turn to some type of temporary borrowing for part of the solution.
The current effort in Congress could finally be the turning point. These senators are developing a serious proposal to improve Social Security’s finances, recognizing that the benefits of ensuring a dignified and modernized U.S. retirement system far outweigh the political costs of courageous leadership.
Eventually, their offering will serve as the start — not the end — of congressional debate. Improvements can and should be considered. But to sustain the legitimacy of any critique, those in opposition ought to present their alternative, realistic fix for the program. The clock is ticking, and given U.S. Senate rules, any reform will require bipartisan support. Politically choosing to let the timer run out instead is indeed a vote to slash Social Security, steering us towards a retirement security shipwreck that we all should be working to avoid.
Shai Akabas is director of economic policy at the Bipartisan Policy Center.