Social Security: We Can Solve This

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Ever since Social Security came into existence in 1935 there has been vigorous debate about who should get it. On Thursday we were reminded that too many people are in line to receive it and not enough people are contributing. The result: The trust fund will pay out more this year than it takes in, a point that we were not supposed to reach for another six years. That’s not really cause for alarm because the trust fund has enough money–theortically speaking– to fund payouts for decades (two and a half decades to be precise). But the larger message is that Social Security is slowly running out of money and that trend needs to be stopped. It won’t bankrupt the U.S. (the way Medicare and Medicaid can) but it’s symptomatic of our national weakness—the tendency to over promise for votes, for applause and to please legions of lobbyists. Capitalism requires an element of self discipline and it has been sorely missing for many years from the discussion of entitlements.

So how do we fix the social safety net? How do we promise within our means? The New York Times called a few bright folks to opine on this yesterday, and the sum of their ideas probably encompass what any big commission would recommend. To wit, we need to raise the socal security age, yet again. The age is already being bumped up and will reach 67 by 2027. But there needs to be another bump to reflect that reality of rising longevity.  The other contributors advocate removing the income ceiling and taxing all wages, and another says social security payments should not be adjusted up for inflation. In the end it comes down to trimming benefits and raising taxes. (Of course, there are those who want to junk the whole system, but that’s for another blog post.)

Each position has some merit and many passionate supporters. Perhaps the best fix would tap all three big ideas: 1) raise the retirement age for today’s teens and toddlers up to 69. Longevity is increasing at such a rate that it will still be a great deal for them. 2) raise the income ceiling, the amount of income to which social security taxes are applied. I don’t favor removing the ceiling altogether because it violates my sense of fairness. This fundraising is not for the national defense but to cushion the later years. There should be a limit as to how much someone is asked to subsidize other people’s retirements. 3) Trim the increase that Social Security recipients receive each year. Currently they get the COLA adjustment, but they got an extra dollop last year because the inflation rate was too low. An index that trails inflation by a fraction would minimize the impact but could save substantial sums over time. Of course, if the Medicare costs for Part B and D go way up as they are supposed to that would be an unfair double whammy on the elderly. This would need to be part of the calculus on any COLA fix.

The ideas above all make sense, but they make even better sense when combined for the simple reason that it becomes shared sacrifice: the younger generations see a delayed retirement age, the middle generations see a slightly higher tax on wages and the older generation sees some limits on the rate of increase in payments. If everyone takes a piece of this responsibility it becomes less of a burden on everyone. I’m not the first to suggest these changes. Indeed, William Gale, director of the Retirement Security Project at the Brookings Institution is one of the Times’ contributors who puts forward some of these very ideas, such as age revision and a change in the tax on wages. Gale does not talk of a change in the COLA calculation though he does suggest a shared response among all parts of society.

Social Security isn’t so much a crisis as it is a challenge.  If we handle it smartly that could be the real windup to a national rationalization of  Medicare and Medicaid. And we all know that’s got to happen someday.