Obama fiscal panel proposes drastic changes to Social Security

In a draft proposal, President Obama's fiscal commission touched what is often described as the "third rail" of American politics: Social Security.

Panel co-chairmen Erskine Bowles and Alan Simpson proposed sweeping changes to the government pension program for the elderly that they say will keep the program solvent for 75 years.

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Under the plan, the number of people eligible to receive Social Security benefits at any specific point would be reduced by raising the retirement age. The retirement age would increase by one month every two years after it reaches 67 under current law, meaning it would reach 68 by 2050 and 69 by 2070. 

Benefit levels would also be reduced for most future retirees, though Bowles and Simpson recommend a minimum benefit level for lifetime low-income earners that would boost the amount they currently receive. The new benefit formula would be phased in by 2050.

The proposal would also inject more cash into Social Security's coffers by increasing the percentage of taxable wages to 90 percent by 2050, which would prevent the percentage from falling to 82.5 percent by the end of the decade. 

Drastic changes to Social Security, perhaps the most contentious element of the plan, are far from guaranteed to be put into place. The proposal has not been approved by 14 of the 18 members of the bipartisan panel. 

But the commission has come under pressure from liberal lawmakers and activists who oppose dramatic changes to Social Security, arguing that the program — solvent until 2037 if no changes are made —should not be used as a vehicle for debt reduction. 

Likewise, Bowles and Simpson said that the changes would not count against reducing the national debt.

"Reform Social Security for its own sake, not for deficit reduction," they wrote. 

But other advocates and lawmakers have argued that sweeping changes are needed to keep the program solvent for future retirees.

The Social Security trust fund currently has a surplus of $2.5 trillion, but that is supposed to run out in 27 years due to the rapid retirement of Baby Boomers. 2010 was the first year that Social Security benefits payments outpaced contributions.

Bowles and Simpson wrote that their plan will prevent a 22 percent across-the-board benefit cut projected to occur in 2037.