Social Security faces trillion-dollar shortfall, urgent reforms needed

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Social Security is in trouble. Trillion dollars of trouble. Every year the Social Security Trust Fund has more outlays than payroll tax revenues. This is not a new revelation. The trust fund has been in trouble since 1972 when Congress authorized linking Social Security payments to cost of living adjustments (COLA) as determined by consumer price index increases. Increasing benefits was easy for the Congress, but the difficult part, matching revenues to pay for those COLAs was left for another day. And as Congress often does, that day has yet to come. But that day is getting closer.  

According to the Social Security and Medicare Trustees, Social Security is only seven years away from insolvency, when by 2033 today’s 59-year-olds will reach their full retirement age and today’s youngest retirees turn 70 years old. If nothing is done, under current law, Social Security faces over the next 10 years $3.2 trillion of cash deficits, equivalent to 2.7% of taxable payroll or 0.9% of the gross domestic product. The longer the Congress waits, fewer options and less time will be available to shore up the Social Security fund, with the inaction leading to hasty changes in taxes or benefit reductions of 23% for all Social Security recipients. It doesn’t have to come to that. But to find the path forward, Congress just has to look back to 1981 when Congress and President Ronald Reagan faced a similar crisis.  

At that time, President Reagan was facing a Social Security system that needed $200 billion to ensure that 36 million senior citizens and disabled Americans would continue to receive their checks. Reagan first thought about cutting benefits, but the blow-back caused him to reconsider how to keep the checks flowing. As would be expected, politics over the solvency of the Social Security system became heated between those wanting to increase taxes and those who wanted to cut benefits. To cut through the politics, and identify fixes to the impending insolvency of the Social Security Trust Fund, Reagan created a 15-person bi-partisan commission with five each selected by the White House, senate majority leader and speaker of the House of Representatives. The commission was chaired by future Federal Reserve Board Chairman Alan Greenspan.  

The Greenspan Commission resulted in the Social Security Reform Act of 1983, which addressed long-term fiscal solvency of Social Security. The adopted recommendations included gradually raised the retirement age for full benefits from 65 to 67, payroll tax increases and taxing Social Security benefits for high-income earners. The compromises in 1983 appear as relevant then as they are today.  

Currently, the proposals to bring solvency to the Social Security Trust fund include lifting the current $186,000 salary cap for imposition of Social Security taxes, which would impact only 5% of salaried persons. Other remedies include gradually increasing the payroll tax rate and retirement age, while gradually reducing benefits. Depending on partisanship, each would lead to political inaction. What made the 1983 compromise work was that it was solely focused on Social Security, the shortfall was agreed upon, and no amendments were permitted to prevent partisan bickering.  

There needs to be meaningful reforms that will ensure that Social Security will not only be available for current retirees, but will be there when those who are currently paying Social Security taxes retire. Short of that, the Congress will have failed the American people.  

Martin Cantor is director of the Long Island Center for Socio-Economic Policy and former Suffolk County economic development commissioner. He can be reached at [email protected].