If you want to see the deep divisions in Washington on how to salvage Social Security, look no further than Ohio’s two senators: Democrat Sherrod Brown and Republican Rob Portman.
If Brown had his way, payroll taxes would be raised on wealthier Americans and benefits would increase for many low-income beneficiaries. If Portman had his way, the rate of growth in Social Security spending would be restrained.
The stark contrast between the two Ohio lawmakers is a microcosm of the searing national debate between the two parties on how to repair a Social Security system.
If nothing is done, the average beneficiary by 2033 will see a 23-percent cut in his or her Social Security benefits. A 48-year-old person planning to retire in 2033 would not receive the benefits he or she has been promised.
Last week, the Social Security and Medicare Trustees — whose members include Treasury Secretary Jack Lew and Health and Human Services Secretary Sylvia M. Burwell — warned that “lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible.”
“People come up with all sorts of plans that couldn’t be enacted,” said Robert Bixby, executive director of the Washington-based Concord Coalition, which pushes for lower deficits. “What we really could use is a little bit of bipartisan cooperation.”
Yet there is little sign that Congress any time soon will even attempt to bridge the vast chasm between the two political parties. In a speech last month at the Center for American Progress in Washington, Brown said that those wanting to restrain the growth of Social Security are “enemies” of the New Deal-era program.
“Today, opponents of Social Security lie and spread half-truths, and they have convinced 57 percent of Americans in one poll that Social Security is in a crisis,” Brown said in remarks prepared for delivery. “Because of their fear-mongering, most young people today believe that Social Security won’t be around when they reach retirement age.”
By contrast, Portman said in a speech last week at the American Enterprise Institute that “there is concern that by honestly confronting the fiscal problem, Republicans will pay a political price,” charging that “Democrats have been successful in the past in demagoguing on this issue, more concerned with scoring partisan points than fixing a problem.”
Obscured by the political rhetoric is the reality that changes will be needed. “We’re not a group that has our heads buried in the sand,” said Max Richtman, president and chief executive officer of the National Committee to Preserve Social Security and Medicare, an organization opposed to cutting benefits.
The reason Congress will need to adopt changes is simple: As millions of baby boomers retire, there will be more people receiving benefits and fewer people to pay the payroll taxes. The Social Security Administration points out that in 2009, three taxpayers supported every recipient compared to 16 taxpayers in 1950.
Because of advances in diet, nutrition and medicine, baby boomers are living longer than their parents, with average life expectancy increasing from 68 in 1950 to 78 today.
Those changes have transformed the federal government’s annual budget. Social Security and Medicare – which pays hospitalization, physician and prescription drug costs for the elderly — consume 40 percent of the federal budget. That dwarfs the $576 billion Washington spent last year on non-defense domestic programs such as education, research, housing, criminal justice, and the environment.
That trend will only grow worse during the next decade when the non-partisan Congressional Budget Office projects that every tax dollar collected by the government will be spent on the mandatory programs of Social Security, Medicare, Medicaid, and interest on the national debt.
“That means everything else … will be funded on the nation’s credit card,” Portman said in his AEI speech.
Dispute over taxes
Social Security is financed by a 12.4 percent payroll tax levied on the first $117,000 of a person’s annual income. Half of the tax is paid by the person while the other half is paid by his or employer.
In saying the future solvency of Social Security “should not be about raising the retirement age or limiting benefits,” Brown backs a plan authored by Sen. Tom Harkin, D-Iowa, that would levy the 12.4 percent payroll tax on all earnings, including those above $117,000 annually. They would then provide a $70 a month boost to most low-income recipients.
In a letter last year to Harkin, the Social Security administration calculated that the plan would raise taxes on those earning more than $117,000 a year by $7.7 trillion during the next 75 years and increase spending on less-well off beneficiaries by $3 trillion.
“It doesn’t make sense that someone making $117,000 is paying a much higher percentage of payroll than someone making 10 times that,” Richtman said.
But the letter pointed out that while Brown’s plan would allow full benefits to be paid through 2048, by the next year only 85 percent of benefits would be paid and would continue to decline to 81 percent by 2086.
In addition, the CBO last month reported that if payroll taxes were levied on those earning as much as $241,600 annually, it would still not make Social Security solvent for the next 75 years, which would require higher payroll taxes for everyone earning more than $50,000 a year.
To Portman, higher taxes are not the answer. In an opinion piece last month in the Wall Street Journal, Portman wrote that “drowning our children in taxes is no better than drowning them in debt to pay our retirement benefits.”
Instead, in his Wall Street Journal piece, Portman suggested raising the retirement age for Social Security recipients and curbing benefits for wealthier Americans, a concept known as means-testing.
Portman also backed a plan offered earlier this year by President Barack Obama that would save $230 billion during the next decade by changing the cost-of-living formula for Social Security beneficiaries to what the federal government claims will be a more-accurate reading of inflation. After Democrats objected, Obama dropped the idea.
“We must be the party of economic growth and opportunity, but part of that is squarely facing the fiscal reality, not being part of the Washington game of kick-the-can down the road,” Portman said in his AEI speech.
Advocates for balancing the budget tend to back those measures, but just restraining spending may not be enough. While Bixby said it is “legitimate” to raise payroll taxes on those earning more than $117,000 annually, he flatly asserted that “it’s going to take a mixture of both new revenue and reduced benefits in the future to deal with the system’s underlying problems.”