William_T._Bianco,_David_T._Canon]_American_Polit

596 Chapter 16Chapter 16 || Social PolicySocial Policy

Social Security Reform So what is to be done? Dozens of plans to reform Social

Security and make it fiscally sound for coming generations have been suggested. There

is a surprising amount of agreement among all the serious plans that saving Social

Security requires a mixture of benefit cuts and tax increases. The calculations get very

complicated in terms of the projected fiscal impact of various reforms, but a mixture of

these options would take care of the long-term fiscal problems of Social Security: 49

• Raise payroll taxes by 1 percent and increase the income ceiling that is taxable.


• Lower benefits for nonworking spouses (that is, spouses who did not work during
  their earning years). Currently, nonworking spouses receive 50 percent of the
  benefits that their working partners do. Some proposals would cut that benefit to
  33 percent.


• Index current and future benefits to inflation instead of wages. Currently benefit
  increases are linked to national average wage increases. Because inflation does
  not increase as fast as wages, linking benefit increases to inflation would generate
  significant savings. Because this would mean a large reduction of benefits over the
  long run, a less extreme version has been proposed called progressive price indexing.
  This approach would reduce benefits only for those in the top 50 percent or 70 percent
  of the income distribution by indexing them to inflation (those in the bottom half of
  the income distribution would still have benefits indexed to wage increases).


• Gradually raise the retirement age to 70 (by 2030). This proposed change is viewed
  by many as fair because it adjusts for the fact that people live longer now than they did
  in the early years of Social Security. Life expectancy of people who turned 65 in 1940
  was 77.7 years, so the average Social Security recipient would receive about 13 years
  of benefits. Those who turned 65 in 2017 could expect to live 19.5 more years, and life
  expectancy is expected to increase by about six months per decade. Therefore, by
  2030 the average life expectancy for those who reach 65 will be 85.3 years (it is 86.5
  for women and 84.1 for men). To bring the expected stream of benefits back in line
  with where it was in 1940, the retirement age would have to be increased to 71.6.^50
  Changing the retirement age to 70 would save $620 billion by 2040.

A more controversial proposal is this:

• Lower benefits for wealthier recipients. The strongest argument in favor of this
  approach is that Bill Gates doesn’t need the measly couple of thousand dollars he
  will receive each month from Social Security. In fact, he wouldn’t even notice if that
  money was used to reduce Social Security’s deficit. More broadly, if benefits are
  phased out for those in the top third of income levels, it will save billions of dollars
  a year. The main argument against this proposal is that it would end the universal
  nature of Social Security and possibly turn it into another welfare program.

A bipartisan commission established by President Obama to examine the long-

term viability of Social Security favored increasing the retirement age to keep up with

longevity, so it would be age 69 by 2075; increasing the amount of income subject to the

payroll tax to 90 percent of all income; and making benefits more progressive, which

would reduce benefits for wealthier people while increasing them for poorer people.

The commission said that these changes would place Social Security on a secure long-

term foundation.^51 However, despite the bipartisan nature of the recommendations,

Congress ignored the report.

The most controversial plans concern partial or full privatization of Social Security.

This is the main issue that divides Democrats and Republicans: Democrats favor

maintaining the basic structure of Social Security’s public social insurance system, and

privatization

The process of transferring the

management of a government

program (like Social Security) from

the public sector to the private sector.

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