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Social Security Reforms (last updated February 6, 2005) (back to top) With his 2004 electoral victory, President George W. Bush has called for new efforts to reform Social Security to avert a financial crisis about four decades from now. While Bush has said that many possible reforms are "on the table," most public debate so far has focused on one particular aspect of his plan, which would allow younger workers to divert some of their payroll tax contributions from Social Security into their own personal retirement accounts. Such accounts would be a departure from the traditional Social Security program, which is actually not a savings or investment program but a program that transfers money from current workers to current retirees. Such accounts arguably would help Social Security's long-term financial future by reducing future expenditures but would entail large amounts of funding in the present ($754 billion over the next 10 years including interest, according to a February 2005 Bush administration estimate) and depend on future economic growth. For several years, there has been a broad consensus that changes must be made to prevent Social Security from going bankrupt sometime around 2042 and that changes will be less drastic if done sooner rather than later. Social Security's Old-Age and Survivors Insurance and Disability (OASDI) program has been collecting more in payroll tax revenues than it has expended for the past two decades and had as of 2003 more than $1.5 trillion in reserves. Over time, however, the OASDI program's financial picture will change, in part due to demographic changes (further described here) such as longer life expectancies and a lower ratio of workers to beneficiaries.
 Demographic Changes affecting Social Security (last updated February 6, 2005) (back to top) Much of the concern about Social Security's long-term future is based in the United States' changing demographics. Social Security was adopted when the age structure of the United States was more of a triangle growing out from a relatively small number of elderly, but this age structure has become more weighted towards the elderly over time and is expected to continue doing so.   A history of the 1983 commission and reforms Dealing with Social Security has been a political minefield for presidents in the past, and one recourse for navigating it has been through bipartisan commissions. The last time that Social Security was amended in substantial ways was during the crisis of the early 1980s and was the result of work by a bipartisan commission chaired by future Federal Reserve chairman Alan Greenspan, though reports indicate that the commission was just the public cover for a smaller group of key legislators. Yet one more victim of the stagnated, high-inflation economy of the late 1970s, Social Security faced exhaustion of its Trust Fund by the early 1980s. Social Security began running deficits in 1975, when it spent $1.5 billion more in benefits than it took in through taxes and continued to do so for the next seven years (this was not the first time that Social Security spent more than it took in, but the first time that it did so for more than two years in a row). Ronald Reagan came into office in 1981 and began the new economic policies to stimulate the economy that would become known as Reaganomics. The Social Security component, as developed by White House Budget Director David Stockman, was announced in May 1981; it would have cut benefits dramatically for early retirees and also reduce benefits in other ways, though it would not have raised the normal retirement age and would not have increased payroll tax rates. A political disaster, these measures were quickly criticized by congressional leaders in both parties and the White House backed away soon after. In September 1981, Reagan then turned, as many presidents did before and have done since, to a bipartisan commission. The 15-member National Commission on Social Security Reform was picked by committee: Reagan picked five (including chairman Alan Greenspan) and promised to name Democrats as two of his five picks, the House majority (under Democratic speaker of the House Tip O'Neill) got three picks, the House minority two, the Senate majority (under Republican majority leader Howard Baker) got three, the Senate minority two. Hopes were not high for the commission. It was the fourth national study commission on social security in less than three years, and some felt that the commission was unnecessary and would simply delay real action for months. The commission's membership was unwieldy and it failed to achieve significant compromises. Public meetings in November 1982 collapsed without any plan in place for Social Security or even for the commission to do any more substantive work. With the commission about to expire without success and given the urgency of the crisis (Social Security trustees said earlier that year that checks would not be mailed in July 1983 unless a rescue plan was in place), action took place in two spheres. First, Congress approved measures that allowed Social Security to borrow billions of dollars from its companion funds in order to get through the next few months. Second, less publicly, the Reagan White House, via David Stockman, decided to convene a smaller group of White House staff and key commission members that could work out the kind of compromise that the full commission did not. Democratic Senator Patrick Moynihan wrote in an op-ed piece that he had been the one to re-open negotiations in early January 1983 with Republican Senator Bob Dole, but Paul Light reported in his 1985 book on the negotiations "Artful Work" that Moynihan had already been involved with negotiations for weeks and had been rewriting history to defuse potential Democratic opposition to a Republican-initiated process. Operating mostly secretly, the "gang of nine," as Light dubbed it, worked out a compromise in less than two weeks and then the proposal was given the stamp of bipartisan approval by the national commission, which voted 12-3 to support it (the three in opposition were Republicans). As enacted into law just three months later, these reforms included moving up already-scheduled payroll tax increases, delaying cost-of-living adjustments to reduce benefits, taxing federal and non-profit workers who had not been subject to the Social Security taxes before, and other measures. The amendments moved quickly through Congress and were signed into law on April 20, 1983. Sources: Sylvester J. Schieber and John B. Shoven, The Real Deal: The history and future of Social Security (Yale University Press, 1999). Paul Light, Artful Work: The politics of Social Security reform (McGraw-Hill, 1985). |
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