Happy Birthday, Social Security. Or is it?
August marks the 75th anniversary of the signing of Social Security into law by President Roosevelt. Three quarters of a century on and controversy over this staple of the New Deal shows little sign of abating.
As The Washington Post‘s Chris Cillizza notes, former President Bush’s failure to pass a reform of the system played a role in the Democratic takeover of the House and Senate in 2006 and Democrats are hoping it will mitigate their expected losses in the upcoming midterm election.
President Obama took to the airwaves earlier this month to castigate critics of the program. And Senate Majority Leader Harry Reid is wielding the Social Security hammer in an attempted political bludgeoning of Republican challenger Sharron Angle over past comments.
So what can be done to ensure Social Security’s long-term solvency? Will it require radical surgery, or over-the-counter medicine? Are critics’ concerns more hype than help? Should it be done away with altogether?
We round up ideas and opinions of the interested parties.
1). Increase taxes/means testing. As The New York Times notes, since President Reagan’s 1983 reform, the rule specifying the amount of annual wages that are subject to the Social Security payroll tax (currently $106,800) has not kept up with the income gains of the top earners. In 1983, only 10% of all wages escaped the payroll tax. Today, it is 15%. If the wage base was increased over 40 years so the amount of wages on which no payroll tax was paid was closer to the 1983 level, some 10% of the Social Security shortfall would disappear. But is it fair?
“They’ll tax more and more of your income and, at some point, it will be that wealthy people simply won’t get it at all,” says lawyer, economist and comedian Ben Stein. “It’s just not going to be viable to pay people Social Security who have a $1 million a year in dividend income. That just doesn’t make much sense. It makes sense if you assume that you have a right to Social Security. But if you assume that you are bound by the laws of arithmetic and the laws of financial gravity, then it doesn’t make sense.”
2). Raise the eligibility date. Life expectancy for someone who was able to live past childhood in 1935 was 65 years old. Actuaries calculated that just as many people would be expected to die before they began receiving benefits as would individuals who live to collect payments. But with advances in technology and medicine, today’s life expectancy is 78 years old. However, the eligibility age has not changed since the program began.
3). Consider privatizing a portion of the Social Security Trust Fund. With the recent financial crisis, the idea isn’t popular. Besides the perceived market risk, populist outrage over Wall Street salaries further complicates the issue. However, Laurence Kotlikoff, Professor of Economics at Boston University and author of Jimmy Stewart is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking, has a solution for both problems.
“Privatize a portion of the trust fund” he argues, “but invest it in a globally diversified index fund run by the government. That way, it minimizes risk and removes Wall Street from the picture.”