We should act now to ensure that Social Security is solidly financed for future beneficiaries. The sooner we act, the smaller the changes in benefits and revenue need to be. Reducing future debt is just an extra benefit of preserving Social Security.
Social Security is a hugely successful program that has kept millions of older or disabled Americans from penury and dependency. But its solvency is threatened. As longevity increases and all those boomers retire, there won’t be enough workers paying into the system to support projected benefits.
We have to increase revenue and reduce scheduled benefit growth to keep the system solvent. If we act quickly, the changes can be phased in gradually and need not affect those already retired or close to retirement.
A balanced package should include increasing revenue by raising the maximum earnings subject to payroll tax, as well as progressive reductions in the growth of future benefits. High earners should get less and low earners a bit more.
Any increase in future retirement ages should account for the greater difficulty of continuing to work in physically demanding occupations. More accurate calculation of the cost of living (the chained C.P.I.) would slow the increase in benefits slightly. Adverse effects on low-income or very aged retirees could be offset by increasing the minimum benefit and adding an increase at, say, age 85. The improved index would make a more general contribution to debt if it applied to tax brackets and other spending programs.
Social Security currently adds to debt, because it pays out more benefits than it receives in taxes. While it accumulated credits when the higher ratio of workers to retirees was bringing in excess funds, Treasury has to borrow to redeem these credits.
As more boomers retire, Social Security will add increasingly to debt. By about 2033, the credits will be exhausted and benefits will have to be cut sharply. Because workers retiring in 2033 are already working and should plan for their retirement, we owe it to them to phase the necessary changes in gradually and avoid the sharp drop.
Preserving Social Security and restraining future debt are both important to American well-being and reinforce each other. There are powerful arguments for doing both — either separately or together.