OPINION: Time to Cut a Deal on Social Security

By Lanny J. Davis – 04/21/11 –

So far, the one thing that President Obama and Republican House  Budget Committee Chairman Paul Ryan (Wis.) agree on in their contrasting budget proposals is the necessity of avoiding specific proposals on  Social Security reform.

They both seem to accept the conventional wisdom that tampering with Social Security taxes or benefits to ensure future solvency is the “third rail” of national politics.

But Mr. Conservative, President Reagan, and Mr. Liberal, Massachusetts Speaker Tip O’Neill, disproved that notion in 1983.

With the Social Security Trust fund out of money and recipients about to face severe cuts, they stood up to their bases and did the right thing. But now the piper is coming due again. Both Congressional Budget Office and Office of Management and Budget (and the Social Security trustees, for that matter) have “real” numbers that show Social Security running short of cash beginning last year — about $30 billion to $40 billion a year from now on.

It’s one thing to say just take it out of the SS trust fund, but actually making that happen (since the fund actually has no “cash,” and really has nothing more than IOUs) means adding to the deficit by borrowing more money from somewhere or someone, including the Chinese. That’s nuts.

And we know, for example, that if we do nothing, in 26 years — in 2037 — there will be no money left in the trust fund and there will be an immediate cutback of 22 percent in Social Security benefits. And then it will get worse and worse, as fewer and fewer current workers are available to pay more and more retirees. (In 1950, the ratio of current paying workers to retirees was 16:1. Today it is less than 3:1 and will get smaller and smaller.)

The conservative Reagan supported increasing payroll taxes. And the liberal Tip O’Neill supported cutbacks in benefits and a gradual increase of the retirement age to 67 by the year 2027.

Compared to the harsh medicine of tax increases and benefit cuts of the Reagan-O’Neill deal, the Simpson-Bowles Commission proposals, which would achieve sustainable Social Security solvency for another 75 years if enacted, seem very mild:

• Modest and graduated decreases in benefits and increases in tax contributions, beginning in 2017 and over the next 40 years, with the bulk of the increased contributions and decreased benefits by higher-income taxpayers, i.e., instituting a more progressive system with everyone contributing, but the wealthier more than the middle class and lower-income.

• An increase in the retirement age from 67, which current law requires in 2027, to 68 by about 2050 — that’s just a one-year adjustment over the next 39 years, or an increase of one month for every two years after 2027. In 1935, when Social Security was first enacted, the average life expectancy was 64, and the retirement age to receive Social Security was 65. Today, as the deficit commission reports states, Americans live an average 14 years longer, retire three years earlier and spend 20 years in retirement.

• Additional revenues by adding to the Social Security system newly hired state and local workers after 2020 (recall that the Reagan-O’Neill deal added federal workers to the system for the first time).

• Recommendations aimed at softening the impact of any changes on the elderly poor: creating a new special increased minimum benefit for those who mostly earned minimum wages; providing enhanced benefits for the very old and the longtime disabled; and a special hardship exemption for those who cannot work beyond age 62.

Some (including many Democrats) claim there is no crisis now, but don’t deny that one is inevitable. Then why reform Social Security now? Because since these reforms almost entirely exempt current and near retirees, reforms are needed well in advance of doomsday to obtain sustainable solvency.

If those Americans who are 40 years old and younger really understood the facts, i.e., that they are the ones whose Social Security benefits will be immediately cut by one-quarter or more if we do nothing, they would be demanding action now.

Once again, we have blue versus red in a polarized stalemate, with no solution in sight.

It’s time for Barack Obama and Speaker John Boehner (R-Ohio) to do a Reagan-O’Neill “purple” solution: Stand up and do the right thing, facing up to the ideologues in their own bases, follow the modest recommendations of Simpson-Bowles, and sustain Social Security solvency for another 75 years.

It’s time.