Heritage: 3 Simple Solutions for Fixing Social Security

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Originally posted at The Foundry by Rob Bluey

Later today the Republican-led House of Representatives will vote on “Plan B,” the latest unsatisfactory proposal put forward by Speaker John Boehner (R-OH) to avoid the fiscal cliff. Boehner’s plan would protect most Americans, except for millionaires, from a tax hike. But even this is a poor fix because it ignores the real problem: spending.

While lawmakers from both parties squabble over tax rates, a fiscal crisis is looming on the horizon. Entitlement programs — Social Security and Medicare to be precise — have unfunded obligations of $48 trillion. By comparison, the fiscal cliff carries a price tag of roughly $650 billion. As lawmakers talk about another debt-limit increase, they need to think seriously about America’s long-term obligations.

So what can our elected leaders do about it?

The first step is recognizing the problem exists, which for some Democrats is mighty difficult. A story in Politico reveals that liberals are having “heartburn” and doing “some painful soul-searching” over a relatively simple fix to Social Security’s annual cost-of-living increases.

Heritage’s David John, senior research fellow in retirement security and financial institutions, believes the time is ripe for a few Social Security fixes. Any fiscal cliff settlement, John writes in a new Heritage report, should address Social Security’s grim financial future.

The Problem

Over the next 75 years, Social Security will owe an estimated $11.3 trillion more in benefits than it will receive in payroll taxes. It has been running deficits since 2010, according to the Social Security Administration.

To make up the difference, Social Security will need “massive annual injections of funding in addition to what the program receives from payroll taxes,” John writes. Don’t believe the liberal myth that Social Security is on solid financial footing. The numbers don’t lie. It’s very much part of the spending debate facing Washington.

The longer Congress delays action, the harder it will be to solve the problem.

The Solution

There is already bipartisan support for two of the three ideas recommended by John. All three are simple fixes that should be included in any fiscal cliff deal.

1) Fix the annual inflation adjustment. The current index used to determine Social Security’s yearly cost-of-living adjustment does an inferior job of measuring inflation. A better solution is a “chained” index, which more accurately measures inflation. This change would immediately result in savings for Social Security. And it’s easy to do — the new index can be implemented quickly and without complication.

2) Increase the full retirement age. Americans are living longer thanks to advances in medicine. And yet Social Security has not kept pace. The important number here is the how much longer people who have reached age 65 will live. That number is trending upward, by nearly a year, according to recent government data. Congress should gradually increase the full benefits age to 68 and then index it to life expectancy in the future.

3) Focus benefits on those who most need them. It’s time to return Social Security to one of its original purposes: protecting seniors who face economic hardship. In order to make Social Security a true insurance program, upper-income seniors would face reduced benefits or none at all. This would strengthen the program’s finances and prevent future tax hikes on younger workers.

There’s more to do beyond these three solutions, but they would provide a solid foundation for future reforms. Heritage’s plan, Saving the American Dream, redesigns Social Security and other entitlement programs to guarantee assistance to those who need it — and keep the American dream alive for future generations.

Read More:

Three Social Security Fixes to Solve the Real Fiscal Crisis

Saving the American Dream: Social Security

Six Bipartisan Entitlement Reforms to Solve the Real Fiscal Crisis

1 Comment

  1. jakee308

    Dec 23, 2012 at 5:57 am

    You immediately give the lie to the use of a differing standard for the COLA to SS by saying their will be immediate savings.

    This is because you know that the new way of figuring inflation will reduce any increases (which by the way have been minuscule for the last 4 years).

    This new way is very suspect. The measures it makes do not reflect what those on SS encounter as their primary cost increases.

    All of those have gone up dramatically (food, fuel, rent, services and Medicare premiums) yet the COLA remains low. This does not reflect reality and it is a recipe for forcing seniors at the lowest income levels into group homes.

    Also, it’s all well and good to speak of raising the retirement age but that’s conditional on a change in society allowing and hiring older workers. This is not the case at present. Partly because of the glut of workers and partly because their is a prejudice on the part of employers against hiring seniors due to fear of increased insurance costs and a shorter retention time for a new worker.

    It’s nice to say that this or that should be done but at least look at the reality of what exists before making such flat statements.

    Your idea of means testing SS is good because too many well off senior take SS when they don’t need it and are quite well off without it. This should be implemented.

    Unless you yourself or a loved one has gone thru the experience of being on SS and what that means then I’d advise you speak less authoritatively on the subject.