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Witness Suggests Changing Social Security Indexing Method

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Proposals for reining in Social Security and Medicare spending surfaced at a recent federal fiscal responsibility forum.

Witnesses appeared in Washington at a meeting of the National Commission on Fiscal Responsibility and Reform, a bipartisan body that is supposed to indentify policies “to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.”

The commission is supposed to come up recommendations for balancing the budget, excluding interest payments on the debt, by 2015.


Robert Bixby, executive director of the Concord Coalition, Arlington, Va., a bipartisan group dedicated to fighting the federal budget deficit, said Medicare reform and Social Security reform are essential to budget reform.

Reforming Medicare and other government health programs could start with tasks such as shifting toward paying physicians on a per-patient basis, rather than per service rendered, and by subjecting more physician payment rates to review, Bixby said.

“Ultimately, these efforts to reform the large government health care programs will take time and a willingness to continuously revisit and re-envision health care reform,” Bixby said, according to a written version of his remarks.

Because controlling health care spending will be so difficult, “it is all the more urgent to save what we can in Social Security,” Bixby said. “Everyone knows what needs to be done, but no one wants to do it. Because the options are well known and have been debated for years, Social Security has gone from being the ‘third rail of American politics” to the “low-hanging fruit.’ The commission could have a powerful effect by making an obvious recommendation to phase-in benefit reductions and increase dedicated revenues.”

Starting in 2016, Social Security will probably start running a chronic deficit, and “Social Security will need to begin redeeming the special U.S. Treasury bonds that make up its trust fund account,” Bixby said. “That, in turn, will put pressure on the rest of the budget because the only choices available will be to cut other spending, raise taxes, or borrow the money (i.e., increase the deficit).”

If Democrats and Republicans work together to shore up Social Security, that would show the public that politicians can work together to solve important problems and that Washington is not paralyzed, Bixby said.

Two obvious solutions are to adjust the program to reflect Americans’ longer lifespans or to link Social Security benefits payments to consumer prices, rather than wages, when indexing benefits for inflation, Bixby said.

Congress could raise payroll taxes, but it should do so only after it has made serious efforts to lower the program’s cost, Bixby said.

Chris Edwards of the Cato Institute, Washington, also talked about the idea of indexing Social Security benefits for increases in consumer prices, rather than wages.

“If we were to make that change, it would reduce Social Security spending by roughly $60 billion annually by 2020 and rising amounts after that,” Edwards said. “That reform would encourage younger Americans to increase their personal savings, which would be beneficial for the nation’s economic growth. Congress could support such a policy change with pro-savings reforms to the tax code.”


Witnesses from Democratic groups and liberal groups expressed skepticism about the idea that much budget savings could come from Social Security and Medicare before 2015.

Michael Ettlinger, a vice president at the Center for American Progress Action Fund, Washington, scoffed at the idea of Congress making major changes in Medicare before 2015.

“Congress has just been through a painstaking process to address the long term health-care challenges of the country,” Ettlinger said. “The system has been redesigned–for the better–and is unlikely to be revisited before there is an opportunity to assess the fruits of that effort.”

Ettlinger also attacked the idea that solving Social Security problems will fix what ails the federal finances.

“Even in the longer term, the Social Security program as a whole is not the most important cause of the problematic deficit forecasts,” Ettlinger said. “That isn’t to say addressing the projected imbalances in Social Security isn’t important–but doing so will only make a modest contribution to overall deficit reduction.”

Robert Greenstein, executive director of the Center for Budget and Policy Priorities, Washington, a liberal think tank, and Jim Horney, director of federal fiscal policy at the center, also said Congress should wait to see how health reform works before making big changes in Medicare, and they said any changes in Social Security rules should be phased in gradually.

“Unlike some others, we believe there are good reasons why the commission could consider policy changes that would strengthen the finances of Social Security, and in so doing, also improve the long-term outlook for the budget as a whole,” Greenstein and Horney said. “But…there is wide agreement that it would be inappropriate to make changes that would significantly affect people who are either currently collecting benefits or are about to become eligible for the program. That means changes in Social Security will not provide significant savings by 2015.”

Edward Gresser, president of the Democratic Leadership Council, Washington, said Medicare and Social Security “are part of a national commitment to provide older men and women a reasonable degree of security in retirement, to which retirees have made their own contribution, through payroll tax payments made throughout their working lives.”

“If cuts in these programs simply reduce security in old age, a relatively smaller working population will need to make up the difference,” Gresser said. “In that case, government’s books will improve, but the fundamental economic health of the nation will not.”


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