Funding gap, rising debt put new focus on Social Security reform

The odds for Social Security reform appear to be growing despite its status as the “third rail” of politics.


President Barack Obama has called for a bipartisan debt commission to deal with the country’s fiscal obligations, and has said “everything is on the table.”

House Majority Leader Steny Hoyer (D-Md.) also has spoken of specific Social Security reforms this year, while a report issued Wednesday showed that the entitlement’s trust fund was taking in less money than it will give out in benefits this year.

For some politicians, that report, from the Congressional Budget Office (CBO), underlined the need to deal with the issue.

“I think there is more momentum and more pressure really to address the issue,” said Sen. Mike Crapo (R-Idaho), a member of the commission.

“Each year on all of these issues, the pressure mounts. I believe the Social Security issue clearly should be one of the issues the commission evaluates.”

Hoyer said Thursday in a statement: “I have long called for action to address the problems facing Social Security, and the CBO report makes it clear that we must come to grips with the issue soon. The creation of a fiscal commission is a key step that moves us closer to dealing with the problem. All options must be put on the table, and all sides must come together without preconditions so that we can ensure Social Security has a strong and lasting future.”

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Former Sen. Alan Simpson (R-Wyo.), the debt commission’s co-chairman, has signaled he plans to push for Social Security reforms.

“This country is going to go to the bow-wows unless we deal with entitlements, Social Security and Medicare,” Simpson told PBS.

Social Security reforms have been seen as too sensitive to touch for years, in large part because of the political influence of senior citizens through the lobbying group AARP.

Former President George W. Bush in 2005 tried and failed to tackle the politically perilous issue, in large part because of opposition from congressional Democrats.

Yet Social Security faces its own problems, as reflected in Wednesday’s CBO report showing spending on benefits exceeding revenue much earlier than expected.

Earlier projections by the CBO had expected negative cash flow for the entitlement in 2017, not 2010.

Hoyer laid out two possible options for extending the solvency of Social Security and Medicare in a speech praising Obama’s fiscal commission earlier this month.

The government could raise the retirement age and peg benefits to income level, so that lower-income Americans would get more benefits than higher-income earners, Hoyer said.

Republicans named to the commission have proposed similar ideas, but they have also pushed more drastic reforms.

Rep. Paul Ryan (R-Wis.), like Hoyer, would raise the retirement age and make benefit levels progressive.

“I have a lot of respect for Steny,” Ryan told The Hill. “I think he’s serious about this.”

Ryan would also allow Americans under 55 to invest more than a third of the Social Security taxes they pay into private retirement accounts, a proposal that echoes one from the Bush administration in 2005.

Crapo would extend Social Security’s solvency by matching the rate of growth for benefits to the economic growth rate.

“Obviously, I would like to see other approaches we’ve had in the past, like allowing people to have more control over the investment of their own contributions,” he said, in a reference to the private Social Security accounts proposed by Bush and opposed by Democrats in 2005.

“But that’s a hard political issue,” he said.

Huge deficits projected for the next decade drove Obama’s call for a fiscal commission.

Obama’s budget for the next fiscal year would add about $9.8 trillion to the debt over the next decade, CBO said. Deficits would not drop below levels equal to 4 percent of gross domestic product, higher than the 3 percent level that’s considered sustainable by both the White House and independent economists.

But benefit levels could remain at scheduled levels for decades, as the entitlement’s trust fund has a surplus of $2.5 trillion that should last until 2037.

Because of the money that has been saved for Social Security over several decades, senior and liberal groups have argued that reforms don’t need to be drastic.

David Certner, legislative policy director for the AARP, said the current blip in cash flow was expected.

“This kind of period is not that far off from the projections,” Certner said. “It’s going to be back in to the black in a couple years.”

The cash flow deficit is just $29 billion, a small fraction of the money saved up in the trust fund, Certner noted.

Social Security should again see more money coming in than it pays out within five years, but its cash flow will return to the red by 2016 as more baby boomers retire, the CBO projections said.

Dean Baker, co-director of the liberal Center for Economic and Policy Research, dismissed the idea that Social Security faces a crisis.

“9.7 percent unemployment is a crisis. Millions of people losing their home is a crisis,” he said. “The possibility that we might have to raise taxes somewhere in the next three decades is a trivial concern by comparison. Only someone too lost to recognize an $8 trillion housing bubble would worry about Social Security right now.”