This week on Facing the Future, host Bob Bixby spoke with Wendell Primus of the Brookings Institution and Romina Boccia of the Cato Institute about the pressing issue of Social Security reform. With Social Security’s the Old Age and Survivors Insurance Trust Fund projected to be depleted by 2032, requiring a 22% benefit cut under current law, the conversation focused on potential solutions to ensure the program’s long-term solvency.
Primus emphasized the importance of preserving Social Security as a wage replacement program, noting its popularity and multifaceted nature. He described it as “three programs in one, disability protection, survivor protection, and retirement,” and argued for a cautious approach that involved tweaking the financing rather than radically restructuring the program. He said that a combination of revenue increases and spending reductions was necessary to restore solvency, cautioning that relying solely on spending cuts would be too drastic. He explained, “Doing it all on the spending side is a pretty radical restructuring, and it would mean a 44% cut to the high earners and a 27% cut to even middle income wage earners.”
Boccia expressed a different view, particularly on the retirement component of Social Security. While she acknowledged the program’s valuable role in disability insurance, she argued that the program “overreaches” on retirement benefits because “the highest income earners, who need financial support from younger working taxpayers the least in old age, are getting the most generous benefits,” sometimes collecting up to $60,000 annually, or even double that for dual-income couples. She argued that Social Security should focus on “the insurance protection, insurance against destitution or poverty in old age, and also insurance against running out of your money because you ended up living longer than you were expecting.”
Boccia proposed transitioning Social Security toward a flat benefit model over time, drawing on the example of the United Kingdom. She suggested slowing the growth of future benefits by indexing initial benefits to prices rather than wage growth, which would gradually bring benefits down to a level that protects against poverty while costing taxpayers less. Although she acknowledged that a rapid shift to a flat benefit would be politically unlikely, a gradual approach could balance sustainability and fairness.
Primus and Boccia also discussed revenue options to address the program’s funding gap. Primus supports raising the payroll tax cap to cover about 90% of wages, and increasing the tax rate slightly. He also proposed closing loopholes that allow some business owners to take compensation as capital income rather than wages to avoid payroll taxes. In any tax reform, however, Primus said “I don’t want to break that link between earnings or taxes on earnings and the benefit formula.”
Boccia expressed concerns about raising the payroll tax cap, citing potential economic consequences. She noted that many high-income earners affected by such a change are essential professionals like physicians. Increasing taxes on these groups could lead to early retirements or reduced work, exacerbating healthcare challenges and driving up costs in Medicare and Medicaid. Additionally, she said that in some states the marginal tax rates on affected individuals could exceed 60%, possibly leading to state-to-state migration. She concluded, “I think politically even it would be quite difficult to make this change.”
Despite their differences, Primus and Boccia found common ground on some revenue ideas, including increasing the taxation of Social Security benefits for higher-income recipients. Both agreed this could be a progressive way to raise revenue without overly burdening younger working families with lower incomes.
On the spending side, Primus suggested gradual increases in the eligibility age for full benefits, particularly for higher earners, to reflect changes in life expectancy. He noted that, “If you’re in the bottom 20% of male earners, you live on average 15 years beyond 62. But if you’re in the top quintile of male earners, you live 25 years more, a 10-year difference.” He also recommended adjusting the benefit formula to consider the highest 40 years of earnings instead of the current 35. He described his plan as one that could gain bipartisan support, emphasizing the need for compromise on both sides.
In combination with adopting price-indexing of initial benefits in place of the current wage-indexing, Boccia suggested instituting a minimum benefit at 125% of the poverty level while slowly reducing benefits over time until everyone would get that “predictable, guaranteed benefit.”When asked about the political path forward, Primus advocated for a bipartisan member summit modeled after the 1990 deficit reduction summit under President George H.W. Bush. He recalled how that process involved members of key committees working directly with presidential leadership to reach a compromise that was then passed through the normal legislative process. “Members need to own it,” he said, arguing that such a collaborative approach was more effective than relying solely on a commission. He acknowledged that achieving reform would require political pain but believed a deal to “save Social Security and Medicare” could be a compelling message to voters.
Boccia was more skeptical about the prospects for bipartisan cooperation in today’s polarized environment. She argued that the scale of changes required far exceed previous efforts and would demand a more powerful fiscal commission with binding authority. She pointed to the Base Realignment and Closure Commission (BRAC) as a successful model, where Congress empowered independent experts to make tough decisions that members preferred not to own politically. “Congress similarly does not want to own entitlement reform in Medicare and Social Security,” she explained.
Both guests agreed that Social Security reform should not be addressed in isolation and should not amount to a simple bailout of general funds from the Treasury Department. Boccia stressed the importance of considering Medicare and the broader federal budget. Primus concurred, advocating for a comprehensive budget summit to tackle deficits across the board. Looking ahead, the experts expressed cautious optimism about the future of Social Security. Boccia believes that preserving economic growth would be key to giving younger generations opportunities despite potential benefit reductions and modest tax increases. Primus highlighted the political advantage of preventing the 22% benefit cut scheduled for 2032, suggesting that avoiding such a sharp reduction could motivate lawmakers to find common ground.
The episode concluded with a recognition of the challenges ahead but underscored the urgency of action to stabilize Social Security and protect its vital role in supporting millions of Americans.
