Fixing Social Security could be painless, given enough time
By William E. Gibson
Sun Sentinel
seattletimes.nwsource.com
WASHINGTON --- Despite all the hyperbole about the future of Social Security, putting the 75-year-old program on firm financial footing can be relatively painless if stretched over time.
Retirement-finance experts say a gradual shift in benefits — less to well-off retirees, more to those of modest means — plus a small tax increase for upper-income Americans would keep the program afloat for generations. While those may not be popular choices, the challenge is far less daunting than cutting government spending or containing the costs of Medicare and Medicaid.
But in hyperpartisan Washington, D.C., long-term solutions have taken a back seat to political conflicts over taxes and spending. Reformers on all sides fear a protracted tug of war between benefit cuts and tax increases will stall remedies for Social Security while the clock keeps ticking toward its potential shortfall.
"Both sides want to use this issue as a battering ram against the other. I don't know that there is the political will to tackle it," said Robert Bixby, executive director of The Concord Coalition, an independent group dedicated to restraining federal deficits.
"Among the major challenges, this is the easiest. It's a relatively simple matter to fix the program. But the political forces don't seem to want to fix it."
Retirement experts say most proposed changes to Social Security would have limited impact on current retirees or baby boomers headed for retirement. The proposals under consideration — including a plan floated this month by the president's commission on fiscal responsibility — mostly would affect taxes paid and benefits received by younger generations.
"People now in their 20s would be the first generation to feel the full impact," said Craig Copeland, a Social Security expert at the Employee Benefit Research Institute in Washington.
He said young people who doubt they will see a Social Security check may welcome a gradual change that preserves the program, even if it pinches higher earners.
"That might be more important to them," Copeland said, "because they would know what benefits they could count on for the rest of their lives."
A draft report released by Erskine Bowles and Alan Simpson, co-chairmen of the National Commission on Fiscal Responsibility and Reform, renewed the long-simmering debate over a Social Security overhaul.
Their plan gradually would raise the retirement age for full Social Security benefits from 67 to 68 by about 2050 and to 69 by about 2075. Newly hired state and local government workers — who now mostly don't enroll in the system — would be drawn in.
The most immediate change would recalculate yearly cost-of-living raises starting in 2012 by tweaking the way inflation is measured. (Low inflation since the last raise in 2009 meant no COLA this year or next year.) The net result of the proposed inflation-measure would shave COLAs by an estimated 0.3 percentage points.
The plan also would speed up the gradual increase in a worker's income that is subjected to Social Security taxes. Earnings up to $106,800 now are taxed at a 6.2 percent rate, which is matched by the employer. The Simpson-Bowles proposal would amount to a tax increase for those with six-figure incomes.
The plan includes hardship exemptions for those unable to work beyond age 62 because of physical problems. The formula for figuring benefits would become more "progressive" to help lower-paid people. And a new minimum benefit would be created for those who have worked much of their lives for minimum wages.
The goal is to avoid a more severe tax increase or benefit cut while keeping the program alive for younger generations.
Social Security is not facing an imminent crisis. But on the present course, reserves will be depleted by 2037, and tax revenue at that time would cover only about 78 percent of promised benefits.
This plan has not been approved by the full commission, much less Congress. It must cross many hurdles and already has roused opposition.
Inaction would be far worse, retirement experts say.
"If we do something now, it can be less dramatic than if we wait for a crisis, when we might have to cut benefits or raise taxes by something like 20 percent," said John Laitner, executive director of the University of Michigan's Retirement Research Center. "Does it look like dramatic pain? Not at this moment. But these proposals will produce a loud debate."
The chairmen's draft report prompted AARP to deliver petitions from more than 900,000 Americans last week urging the commission not to recommend cuts to benefits.
A focus group hosted by AARP in Doral, Fla., last week reinforced the point that senior citizens depend on Social Security and fear change. Retirees in the group said they could not withstand a benefit cut, and middle-aged participants said they are counting on Social Security to finance most of their retirement.
AARP also released a survey of 501 Florida voters, age 40 and older. Only 22 percent were very confident they will have enough money to live comfortably in retirement, while 75 percent had little or no confidence their children will enjoy a secure retirement.
Only 30 percent in the survey said Social Security raises should be reduced to keep the program from running out of money.
"People are terrified, and I'm terrified for them," said Susan Schrank, 57, a nurse in Apopka, Fla., who is worried about a relative who works for $8 an hour. Schrank said she and other relatively secure people should be willing to sacrifice a little if it would help keep others out of poverty.
"I don't want to be taxed to death," she said, "but we are talking about Social Security now."
Other proposals would preserve projected benefits but increase payroll taxes more steeply by subjecting a higher level of income to taxes.
Rep. Ted Deutch, D-Fla., has proposed legislation that would phase out the earnings cap by 2017 and tax all employee income. He also proposed a way of figuring cost-of-living adjustments to take into account rising medical expenses faced by older Americans.
He called the commission co-chairmen's proposal "an assault on senior citizens and the middle class."
Congressional Republicans, fresh from victories in the midterm elections, are in no mood to increase taxes.
Most GOP candidates steered clear of Social Security issues, but some embraced a plan promoted by Rep. Paul Ryan, R-Wis., who is in line to become House budget chairman next year. His plan would scale back benefits for most future retirees, raise the retirement age and allow workers to invest part of their payroll taxes in personal investment accounts.
The tea-party rebellion and public alarms about the mounting national debt have revived interest in these conflicting proposals.
The Social Security surplus has propped up the federal budget for years. But the program could add to the national debt if it runs short of money to pay full benefits. Overhaul backers hope a compromise will keep it alive and help put the nation's finances on solid ground well into the future.
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