Social Security and You: Gloom, But No Doom, for Social Security
In the spring each year, flowers and trees bloom. And so do gloom and doom stories about the future of Social Security. And that's because in April of each year, the Social Security board of trustees is required to issue a report on the status of the Social Security trust funds. (They also issue a status report on Medicare. But this is a column about Social Security, so that is the only report I will cover today.) And although there is some gloom associated with the trustee's report, there is no reason for doom.
This year, the report says Social Security will go belly up in 2035. Well, that's what the headlines say. An in-depth reading of the trustees' findings show that if no changes are made to Social Security by 2035, the trust funds will be depleted, and the incoming payroll taxes will only be enough to cover about 75 percent of promised benefits. So Social Security would not be bankrupt in 2035, but the system would certainly be in some serious doo-doo! (That's the gloomy part of the story.)
So why am I not concerned? Because we've been down this road before. If you are a typical baby boomer, you were into "sex, drugs and rock 'n roll" in the '60s and '70s. But in those same years, I was a nerd, recently hired by the Social Security Administration. And I very quickly became interested in the history of Social Security legislation. I learned then what I still know today: Social Security has been reformed many times in its long history. And more often than not, major reforms don't happen until politicians' backs are up against the wall.
Why does Congress wait so long to do anything? Because though Social Security reform choices are rather obvious, they are politically difficult to implement. To be more precise, Social Security reform almost always means two things are going to happen: Somebody's tax is going to go up, and somebody's benefit is going to get cut. Congress just doesn't like to do either. Still, they inevitably act responsibly and do the right thing.
For example, back in the late 1970s, Social Security was in much more dire straits than it is in today. At that time, the trustee's report was predicting that the system was just five years away from meltdown. One of the first major things Ronald Reagan did after he was elected president was to appoint a bipartisan National Commission on Social Security Reform. The commission had 15 members: eight Republicans and seven Democrats. Some were members of Congress. Some were private citizens. A couple of the more recognizable politicians on the commission were Senators Bob Dole and Daniel Patrick Moynihan. The private citizens included bankers, insurance company executives and management consultants. Alan Greenspan, the noted economist and chairman of the Federal Reserve, served as the commission's chairman.
The commission members met nine times, on approximately a monthly basis. In January 1983, they issued their report with a number of recommendations for reform. The report and their reform proposals filled a 150-page book, which I have on my desk. Though I can't summarize all of it in this short column, I can share some of the major legislative changes that grew out of the report. Surprise, surprise: Those changes resulted in some people's taxes going up, and some people's benefits being cut.
The tax increase was a slight and graduated rise in the Social Security payroll tax. It went up from 5.7 percent, where it was in 1984, to 6.2 percent by 1989. (As always, those rates are doubled for self-employed people.) And that's where we still are today.
The major benefit reduction involved making people wait longer to collect full retirement benefits. The full retirement age was increased in gradual steps -- from 65 to 67. In fact, we still haven't reached the full extent of that legislative change. The FRA won't hit 67 until people born in 1960 and later start retiring.
There were some relatively minor benefit cuts, too. As just one example, survivor benefits to college students were eliminated.
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Those changes, implemented just a few years before the system was scheduled to go into the red, have kept Social Security in the black for almost four decades. Now we are approaching another crunch point. And some president will appoint another bipartisan commission, and they will come up with another set of reform proposals that will keep Social Security chugging along for another 50 years or so.
What will those reforms be? Personally, I think the Social Security tax rate ought to be bumped up a few percentage points. Again, it's been locked in at 6.2 percent since 1989. Gradually increasing it to 6.5 percent over a number of years could be justified. However, the commission may take the slightly easier and more popular approach of suggesting an increase in the wage base: the amount of earnings subject to the payroll tax. That base is currently $132,900. I know from the emails I get from readers that many people think the base should simply be eliminated. In the current conservative political climate, that will never happen. But we might see the base raised to something like $250,000, with graduated increases after that.
On the other side of the ledger (the cut benefits side), the commission could recommend bumping up the retirement age another year or two over the next several decades. In other words, my current preteen and teen grandkids might have to wait until age 68 or 69 before they could collect full Social Security benefits.
The commission also might suggest increasing the number of years used to figure a Social Security retirement benefit. Currently, benefits are computed using a 35-year base of earnings. That same formula has been used for about 40 years. They could bump up those base years to 38. This would have the effect of lowering future benefits because the more years used to figure a retirement rate, the lower the benefit would be. If that doesn't make sense to you, think of it this way. Basing a person's Social Security retirement benefits on his or her highest 3 years of earnings would result in a much higher monthly benefit than using 35 years. So using 38 or more years would slightly lower future benefits.
These are just a few examples of changes that could come out of the next commission on Social Security reform -- whenever a president and Congress get gutsy enough to form one. Let's just hope it's sooner rather than later.
If you have a Social Security question, Tom Margenau has the answer. Contact him at firstname.lastname@example.org. To find out more about Tom Margenau and to read past columns and see features from other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.