A Social Solution for Social Security
Last week’s report from the Social Security Trustees laid out the challenges facing the vital program. The largest federal program began running annual deficits in 2010 and will continue to do so each year through 2033, when the trust fund is projected to become exhausted. At that point, recipients will see a 25% cut in benefits, absent any action.
Our analysis made clear the need for some kind of change in order to bolster Social Security’s finances. And the sooner action is taken, the more the reforms can be phased-in and the better beneficiaries can plan for the changes.
While politicians in Washington have disagreed over what to do and have delayed action even though the problem has been foreseen for years, Americans across the country have been making the tough choices necessary to strengthen the program for the future. The results of CRFB’s budget simulator pertaining to Social Security challenge the notion that it is still the third rail of American politics and instead shows the fast track to reform.
Several Social Security options received majority support from the over 8,000 users who completed the simulator and voluntarily submitted their results for analysis (although note that our results are not scientific). In particular, two ideas that have received a great deal of attention as of late, and also have been the subject of heated opposition, received overwhelming support. Seventy-four percent of the group opted to gradually raise the Social Security retirement age from 67 to 68, including 71 percent of Democrats and 74 percent of Independents. [Read more on the topic here and here.] Switching to the chained Consumer Price Index (CPI) to measure inflation for cost-of-living adjustments (COLAs) was supported by 71 percent of participants, including 68 percent of Democrats and 71 percent of Independents. [Learn more about the chained CPI here, here, here and here.]
Increasing the number of years used to calculate a retiree’s benefits from the highest 35 years to 40 years was chosen by 53 percent of participants, including 48 percent of Democrats and 53 percent of Independents. Including all new state and local workers in Social Security was one of the most popular choices in the simulator, garnering support of 77 percent. And three options to gradually reduce scheduled benefits while protecting at least some earners received a combined 81 percent of support. Finally, either raising the Social Security cap to 90 percent of earnings was or enacting a two percent surtax above the cap was chosen by 76 percent of the sample, including 69 percent of Republicans and 74 percent of Independents.
|Social Security Options Supported by Majority of Users|
|Option||Savings (Percent of 75-Year Shortfall)||Savings (billions)||% Users||% Dem||% Ind||% GOP|
|Raise Retirement Age to 68||~20%||$110||74%||71%||74%||82%|
|Gradually Reduce Scheduled Benefits, Protecting Some Earners*||~65%||$80||51%||42%||52%||64%|
|Use a More Accurate Measure of Inflation for COLAs||~20%||$100||71%||68%||71%||77%|
|Increase Years Used to Calculate Benefits||~15%||$40||53%||48%||53%||63%|
|Include New State and Local Workers||~10%||$80||77%||76%||76%||82%|
|Raise Payroll Taxes On Income Above Social Security Cap||~35%||$420||55%||61%||53%||49%|
*This assumes the "Progressively Reduce Scheduled Benefits, Protecting Low Earners" is enacted since it is the first option to receive majority support. Reducing benefits by 30% received 31 percent support while reducing benefits while protecting low earners received 20 percent support.
The options that received majority support would result in debt savings of $830 billion through 2018. In addition, the options chosen would eliminate the Social Security 75-year shortfall and then some, closing about 165 percent of the shortfall.
Just as simulator users supported a combination of spending cuts and increased revenue to shore up the budget as a whole, so too did they for fixing Social Security.
Full results of the simulator.
Read the summary.
Do the simulator.