Social Security, the federal program providing income security for retirees, the disabled, and their survivors, is one of the most effective government programs in U.S. history. Unfortunately, it's also in trouble and no consensus has emerged, either in Washington or among the public at large, on what approach the nation should take to fix it. The good news, however, is that Social Security reform is more "doable", in that there is more potential for bipartisan consensus than on reforms of health care or tax policy.
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Choice 1
Maintain Our Commitments Through A Combination Of Benefit Cuts And Tax Increases
- Increase taxes dedicated to Social Security — to keep the Social Security program solvent.
- Increase the Social Security payroll tax cap, so that earned income above $102,000 a year is taxed.
- Change the formulas for how benefits are calculated, reducing benefits for those who need them least.
- Have state and local government workers pay Social Security taxes.
- Gradually raise the retirement age for those who are healthy and able-bodied to 70 (or index to rising life expectancy) to control costs, or index the retirement age to rising life expectancy.
- We'll also need to decide which federal programs to cut in order to ensure that there's enough money to support Social Security, or else the sales tax will be unreasonably large. For instance, we might decide to cut federal education programs (leaving it to state and local government to pick up the slack), or cut back on military spending.
- Slightly increase individual and/or employer Social Security taxes.
Arguments for:
- Providing for individuals as they age, children of deceased workers, and people with disabilities is one of the fundamental responsibilities of government.
- Everyone who has paid into Social Security, regardless of their income, deserves to get the benefits of the program and to have a secure retirement at public expense.
- Social Security already keeps millions out of poverty, is very important now since the nation's economy is facing a downturn not seen since the 1920s, and will be even more important in the future. Americans don't save enough, lose their savings because of economic events over which they have no control, fewer companies offer pension plans, and unemployment rates are skyrocketing in many areas of the country.
- Keeping people out of poverty yields long-term benefits. Ensuring that survivors of deceased workers, including children, can continue to go to school, receive health care, eat well, and stay in their homes yields a more educated and productive future workforce. When older adults have income security, their working-age children spend less time out of work and have more time to raise their own children.
Arguments against:
- Providing for vulnerable citizens is not one of the fundamental responsibilities of government. The income security of retirees, people with disabilities, and children of deceased workers is the primary responsibility of those individuals, along with their families.
- Unless we rethink how we handle Social Security, the costs will become unreasonably high in the years ahead, resulting in taxes that are too high, cuts in other important programs that are too severe, or a national debt that is much too large.
- It doesn’t make sense for wealthy retirees get benefits at the nation’s expense—as they do under the current system—while so many Americans struggle to make ends meet.
- Social Security is important, but not to the point where we sacrifice other important needs. Economic growth and vital services might get sacrificed if we have to raise taxes or cut spending elsewhere to maintain Social Security.
Discuss this choicework Choice 2
Make Social Security Affordable By Focusing On Those Who Need It Most
- Make Social Security benefits dependent on one’s income, reducing benefits for the wealthy.
- Gradually raise the retirement age at which people are eligible for Social Security benefits, for the able-bodied, now that people are living and working longer than used to be the case.
Arguments for:
- We can only make Social Security affordable by making some fundamental changes in how it operates. Incremental changes in things like the retirement age or the size of cost-of-living increases will not be enough.
- While this approach is a dramatic change from the past, it does preserve Social Security’s essential mission of providing income security for older adults, survivors of deceased workers, and people with disabilities (or does it?).
- Well-to-do retirees don’t really need Social Security – this focuses the program on the people who need it most.
Arguments against:
- Linking benefits to retirees' income would undermine support for Social Security, with many upper-income people likely to question why they would be paying taxes for a system that would not pay them benefits. It also punishes those who have worked hard and been financially prudent.
- This solution avoids the fundamental question of why government is handling something that individuals should be doing for themselves. Whatever your income, it’s foolish to trust the government to completely take care of your retirement; you're better off handling it yourself.
- People have made plans for retirement based on the system as it is today. We can’t just suddenly change the rules on people.
Discuss this choicework Choice 3
Make Retirement Security More Of A Personal Responsibility
- Create personal retirement accounts that require individual saving as a supplement (or alternative to) to Social Security. These would be a default option for Americans, enabling them to opt out. Savings up to a certain annual threshold could be tax deductible.
- Subsidize lower-income Americans' personal retirement accounts with government funds, to create a more level playing field, and/or enhance the Social Security benefits of lower-income Americans.
- Allow individuals to decide how to invest their Social Security taxes, possibly through an approved list of mutual funds.
Arguments for:
- This approach emphasizes personal responsibility and limited government, basic values America has embraced throughout its history. The income security of retirees, people with disabilities, and children of deceased workers is the primary responsibility of individuals and families.
- Many people feel better handling their own financial affairs rather than trusting that the government can be relied on to do it for them, and they should be allowed to do so.
- Despite the current financial crisis, investments in stocks and mutual funds have historically yielded higher returns.
Arguments against:
- This approach undermines our commitment to community and belief in government’s role in taking care of vulnerable citizens – basic values America has embraced throughout its history.
- Under a self-financed retirement system, lower-income retirees, survivors of deceased workers and people with disabilities would suffer disproportionately, as would those who do not have the opportunity to invest, lack access to or do not understand information about personal finances and investing. Others are simply bad planners or have bad luck. The result would be more personal tragedies and greater societal problems.
- The costs for the transition from the current system to one based on personal savings accounts will cost billions of extra dollars (because we’ll still need to pay Social Security for current retirees while we transition to the new system). While this strategy might help bring down the national debt years from now, in the meantime, it will drive it much higher.
- Providing for the elderly, people with disabilities and survivors of deceased workers should be a community responsibility. We’ve made promises that people are depending on for their security.
- Due to problems in the economy in the past two years, many people who invested in the stock market through private accounts have seen their savings greatly reduced or eliminated. Many workers who relied on their pension plans are now struggling to adapt to new rules their companies have implemented (in the auto industry, for example). Many employers are not matching contributions of their employees to 401k plans. All this shows why we can't rely on private investment to take care of everyone's retirement needs. The government has to play a major role.
Discuss this choicework
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