We need to fix this, and the newly created budget conference appointed at the conclusion of the debt ceiling crisis is the place to do it. It may seem impossible for a dysfunctional Congress to touch the “third rail” of politics given its disappointing performance in all areas. But a deal on Social Security may not be as far-fetched as it seems.
First, there is more agreement on Social Security solutions among Democrats and Republicans than meets the eye. And second, a deal to fix Social Security may be the only way to make progress on every fiscal issue that concerns Democrats and Republicans—from sequester to the debt ceiling—providing an incentive for both parties to act.
The president, in his budget proposal, supports chain-weighting cost-of-living adjustments as an initial step toward fixing Social Security. In plain English, chain-weighting would fix an upward bias in our inflation measure, thereby slightly reducing COLA increases. In other words, a modest benefit cut. That’s what Republicans want. Meanwhile, in Congress, rock-solid conservative Rep. Reid Ribble (R-Wis.) has been rallying bipartisan support behind a comprehensive fix that would more than likely include raising the payroll tax cap. In other words, a tax increase—which is what Democrats want.
These are two of the main elements that would underpin any Social Security deal. And because all changes go to shore up the program, Republicans can move from their no-never pledge on taxes as Democrats back away from their promise not to ever touch benefits.
Of equal importance, the significance of a fix goes far beyond Social Security and could lead to progress on ending sequestration, increasing public investments, and reforming the tax code. Here’s how that would work.
The menu of Social Security changes is short and well-established. So a plan will likely resemble the two most prominent bipartisan proposals in circulation—Bowles-Simpson and Domenici-Rivlin. Both of those plans raise significant new revenue while trimming future benefits, all while protecting the most vulnerable. We estimate that the total amount of new revenue generated would be about $730 billion over ten years. Nearly all of this would come from high-income workers and their employers.
With hundreds of billions of dollars of new revenue locked in to preserve Social Security, suddenly solutions to other vexing fiscal problems fall into place. The pressure to find significant new revenue through tax reform is dramatically lessened. Chain-weighting the Consumer Price Index creates billions in program savings and increased tax revenue. That money can be used to increase discretionary spending held captive under sequestration, meaning Democrats get new spending on investments without adding a dime to the deficit. Finally, the debt ceiling could be hiked substantially, because fixing Social Security has the added benefit of improving our long-range fiscal outlook by trillions of dollars.
Fixing Social Security is never a task that politicians jump to, but here, too, we suggest an easier way. Appoint a bipartisan commission to draft and present recommendations in December 2014. Require a congressional vote by April 2015. Allow substitute amendments but only those that achieve 75-year solvency. And add a trigger, so if Congress can’t pass anything, fixes (like the Social Security component from Bowles-Simpson or Domenici-Rivlin) will still take effect in 2016. This guarantees a plan that is bipartisan and balanced.
Sure, commissions have a bad rap from numerous busts over the last decade. But, the most recent one, Bowles-Simpson (which, in fairness, we supported), had fatal structural flaws. As opposed to remaking all of government, a Social Security commission can keep the scope narrow. You can have more non-elected experts serve on the panel. And you can structure the commission’s vote so that simple majority rules. The Defense Base Closure and Realignment Commission (BRAC) effectively overcame tough politics five times over the last 25 years. Structured well, a Social Security commission could do the same.
We can continue hopping along from crisis to crisis, making a mockery of Washington and stalling our economy. Or we could do big things that are balanced, necessary, and possible. The key is Social Security.
Kessler is senior vice president and Horwitz is director of the Economic Program at Third Way.