Along with baseball and cherry blossoms, spring in the nation's capital brings a ritualized dance over Social Security. Every year for the last two decades, Social Security's trustees have issued a report alerting Congress that action is needed to keep the program solvent. And every year, Congress answers with silence.
It was not always this way. In 1973, the trustees projected a deficit. By 1977, Congress had responded with corrective legislation. In 1981, when that action proved insufficient, Congress began work on a new solution. President Reagan announced his own set of reforms, including a proposal to cut benefits sharply for people about to retire early. That set off a firestorm of protests. To quell the uproar, Reagan quietly dropped the plan and called for the formation of a bipartisan commission. The commission developed a package that Congress passed and Reagan signed into law in 1983. Subsequent trustees' reports again showed Social Security in balance.
Beginning in 1989, however, the trustees again started alerting Congress to deficits caused mainly by changing assumptions, including those about the economy and disability rates. Why didn't President George H.W. Bush, President Clinton or Congress offer serious solutions? Why did President George W. Bush promote a privatization proposal that would have made Social Security's deficit larger? Where did the political courage go?
In fact, political courage was in no greater supply in the 1970s and early 1980s than it is today. The circumstances were simply different. Back then, Social Security faced a short-term deficit: inadequate funding to pay full benefits by the early 1980s. Congress and the White House were willing to make some hard decisions to avert the political catastrophe of millions of beneficiaries not receiving their promised benefits, perhaps just before the next election. Today, there is no such danger on the near horizon.
Social Security will run a surplus until 2027, when it will have accumulated $5.5 trillion. At that point, if no action is taken, the trust fund will begin to cash out the Treasury obligations it holds. That will allow all benefits to be paid until 2041, according to the latest trustees' report.
Despite the long time frame, the trustees are right to alert Congress, which should act without delay so changes can be modest and phased in. Moreover, the quicker Congress acts, the sooner it will restore an intangible benefit. As its name suggests, Social Security is intended to provide security -- peace of mind -- in addition to cash benefits. Peace of mind is lost when politicians and pundits make alarmist statements like "Social Security is going broke" or "it's unsustainable." Eliminating the projected deficit would end those frightening, hyperbolic claims.
But without an imminent crisis to force some action, what would give Congress and the president the backbone to make the necessary changes? Fortunately, it would take only three reforms and not much backbone to put the program back in balance.
First, instead of repealing the estate tax, as President Bush wants to do, Congress should dedicate its revenue to Social Security. The accumulation of huge fortunes depends, in part, on the productivity and infrastructure of the nation. Requiring heirs to contribute to the basic security of all Americans seems a reasonable minimum to ask of those who have benefited so greatly from the common wealth.
Second, Congress should restore the practice of subjecting 90% of aggregated wages nationwide (i.e., the sum of all wages, taken together, of corporate executives, janitors and everyone else) to Social Security taxes. Because the wages of the highest-paid workers have increased much more rapidly than average wages over the last several decades, only about 84% of all wages is currently subject to Social Security taxes, resulting in billions of dollars of lost revenue every year. Restoring the 90% level, by gradually increasing the maximum amount of earnings subject to taxing, would have no effect on workers earning less than the maximum -- currently $102,000 a year. If this proposal were now law, those earning more than $102,000 -- just 6% of the workforce -- would have paid a mere $120.90 in additional contributions this year.
Third, Congress should permit Social Security to improve earnings by diversifying its portfolio and investing some of its assets in equities, as just about all other public and private pension plans do.
These reforms would restore Social Security to balance -- without benefit cuts, without raising the retirement age and with only a very modest tax increase on 6% of the workforce. Politicians should leap at the opportunity to do so much good and reap so much political gain at such little cost.