Fixing Social Security – as long as I don’t have to pay

Is it fair that only current workers pay the price of fixing Social Security when those of us now collecting avoided necessary changes for decades while we worked?

Fair? How do you define “fair”? For most people, including most Americans, “fair” means treating me the way I think I should be treated. So, for all of us who contributed more than what we will receive, we think “fair” means having others pay first to correct the underfunding.

Keep in mind, when you ask if it is fair to push the burden onto future generations, Congress and President Carter in 1977, as well as Congress and President Reagan in 1983 already answered that question – Yes! Yes! Yes! A thousand times Yes! Tens of millions of times YES!

Almost all of the changes in 1983 focused on future wage earners and beneficiaries. Of the items you listed:

Gradually raised the full retirement age from 65 to 67,

Began taxing Social Security benefits for higher-income recipients,

Increased payroll taxes for both employees and employers,

Covered new federal employees under Social Security (previously exempt)

Delayed cost-of-living adjustments (COLAs) temporarily to reduce payouts – instead of fixing the massive error Carter made in 1977 – 1988.

Very little of that affected existing retirees’ benefits, and, the last item, allowed almost everyone who retired prior to 1983, to continue to receive an unearned, and unpaid windfall.

But the real damage, and shoving off the cost to future generations happened in 1977. How did we get here? If you ask Andy Biggs:

“… A 1977 law that locked in automatic benefit growth has quietly driven the program toward insolvency, while shifts in how compensation is structured and taxed contribute to misunderstandings on the share of compensation affected by payroll taxation. Understanding these dynamics is critical to crafting effective reforms that address the root causes of Social Security’s funding gap. …

From Social Security’s inception in 1935 up until 1977, Social Security benefits were increased on an ad hoc basis. In nine of 13 Congressional sessions from 1950 to 1975, Social Security benefits were boosted – and not merely through cost-of-living adjustments after retirement, but also the initial benefits when a person first retires. Benefits were increased as-needed and as-affordable, with Congress considering the adequacy of benefits as well as the other financial demands on the federal government.

But in 1977, Congress enacted and President Jimmy Carter signed a major change to the Social Security benefit formula. The 1977 Social Security Amendments put the benefit formula on autopilot, dictating that the initial benefits received in retirement would increase from year to year at the rate of national average wage growth. As a result, the average Social Security benefit today is about 70 percent higher than the average benefit paid in 1977, even after adjusting for inflation.

The average Social Security benefit today is about 70 percent higher, in inflation-adjusted terms, than the average benefit paid in 1977.

This approach, called “wage-indexing,” largely took economic growth out of Social Security’s funding equation. If the economy grows faster, wages grow faster and payroll tax revenues grow faster—but not long after, benefits start to grow faster as well. Wage indexation of initial benefits is why even sky-high rates of economic growth would not keep Social Security solvent.

But this was a policy choice: demographics didn’t have to be the main driver of Social Security’s costs. It was Congress in 1977 building economic growth into the benefit equation, that ensured demographics were all that was left.

It’s worth noting that Congress altered Social Security’s benefit formula against the unanimous recommendations of an expert panel created to consider just that issue. The panel argued that adopting a slower rate of benefit growth would allow “future generations to decide what benefit increases are appropriate and what tax rates to finance them are acceptable.”

Had the pre-1977 approach continued, Social Security would almost certainly be solvent today. Congress, ensuring that Social Security benefit costs would stay roughly in line with tax revenues, would have made its discretionary benefit increases just slightly smaller than the automatic rate that is now embedded in the program’s benefits.

But, by effectively giving away its power to adjust the growth rate of future benefits until a funding crisis was nigh, Congress made demographics destiny. And, in the process, has practically guaranteed that such a crisis will occur. …”

Stop lying to Americans about what the issue is when it comes to Social Security funding. The only “fair” solution would identify underfunding for everyone who is a wage earner today and everyone receiving a benefit, and, over a period of years, have them correct the underfunding.

The problem is that Congress continues to be willing to promise more benefits than they are willing to levy in taxes – in order to buy votes – while blaming “the rich”, “the ungrateful”, etc.

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