August 30, 2014

Social Security Reform Should Ensure Sustainability, Increase Savings and Improve Generational Equity

  • Social Security, established in 1935, is the federal government’s largest program. It represents approximately one-fifth of the federal budget and...

At first glance, circumstances may seem even less favorable for Social Security reform than under the last two presidential administrations. But that may not really be the case. This year, for the first time since 1983, it is expected that Social Security will pay out more than it takes in – focusing attention on the need for long-term sustainability. Fixing the system would likely be easier than Medicare or tax reform, and it would send reassuring signals to the financial markets and the public. The options for repairing Social Security are well known.

So Concord Coalition Executive Director Bob Bixby says that when looking for ways to address the structural deficit, Social Security has gone from being the “third rail of American politics” to the “low hanging fruit.”

The Senate Special Committee on Aging released a report last week titled “Social Security Modernization: Options to Address Solvency and Benefit Adequacy.” While the report is quite informative in some respects, its focus on 75-year trust fund solvency minimizes the fiscal challenge.

Trust-fund accounting assumes that surpluses accumulated in prior years can be drawn down to defray deficits incurred in future years. However, the trust funds are bookkeeping devices, not a mechanism for savings. Their existence does not, alone, ease the burden of paying future benefits. When assessing reforms, the question is not what the program looks like over a 75-year average (actuarial balance) but whether it is on a sustainable path at the end of the 75th year -- or headed over a cliff.

The Concord Coalition believes that Social Security reform plans should meet three fundamental objectives: Ensure the system’s long-term fiscal sustainability, raise national savings, and improve the system's generational equity.