On April 26, the Senate Finance Committee examined proposals to achieve sustainable solvency for Social Security. In his opening remarks, Chair Charles Grassley (R-IA) stated, “It has been more than 20 years since Congress enacted major Social Security reform. Despite the obvious need for additional reform, policymakers have refused to take further action. Instead, Social Security has become a political hot potato, tossed back and forth, producing motion, but no progress. If this Congress is going to muster the courage and accept the responsibility to address Social Security reform this year, we should do more than kick the can down the road. Achieving only 75-year solvency, like the 1983 reform, means we have failed to fully address the problem. That means we’re passing the buck to some future Congress.”
Michael Tanner, director of the Cato Institute’s Project on Social Security Choice, contended that if the system is not reformed, Social Security would begin to run a deficit in 12 years and benefits would have to be drawn from the Social Security Trust Fund. He added, “To put it in perspective, think of it this way. In 2018, the first year after Social Security begins running a deficit, the shortfall will be roughly as much as the Federal government spends on such programs as Head Start and the WIC [Special Supplemental Nutrition Program for Women, Infants and Children] program. The cost rises rapidly thereafter. By roughly 2023, the cost of redeeming enough Trust Fund bonds to pay all the promised Social Security benefits would be nearly as much as the cost of funding the Departments of Interior, Commerce, Education, and the Environmental Protection Agency…Simply redeeming the Trust Fund will begin to squeeze out all other domestic spending priorities.”
Mr. Tanner stated that under the current system, “Congress forces all Americans into a one-size-fits-all, cookie-cutter retirement program, a system that cannot pay the benefits it has promised and in which we have no right to the money we pay in. With personal retirement accounts, workers who want to remain in traditional Social Security could do so. But younger workers who want a choice to save and invest for their retirement would have that option.” He expressed his support for a bill (H.R. 530) introduced by Reps. Sam Johnson (R-TX) and Jeff Flake (R-AZ) that would create an Individual Social Security Investment Program: “Under this proposal, workers under the age of 55 would have the option of diverting half of their Social Security payroll tax (6.2 percent of wages) to an individual account…Workers who do not choose the individual account option would continue to pay into and receive benefits from the current Social Security system.” Mr. Tanner argued that the legislation “gives workers ownership and control over their retirement income,” adding, “It would give low- and middle-income workers the opportunity to build a nest egg of real, inheritable wealth. It provides younger workers with greater choice. In short, if we measure a Social Security program not just as a matter of dollars and cents, but as a matter of human liberty and individual dignity, Johnson-Flake provides a better way to take care of our retirement.”
A senior fellow at the Institute for Policy Innovation, Peter Ferrara, stated his support for an alternative proposal (H.R. 1776/S. 857) introduced by Rep. Paul Ryan (R-WI) and Sen. John Sununu (R-NH) that would establish a Personal Social Security Savings Program. Under the bill, workers under the age of 55 could choose whether they wish to continue with traditional Social Security or invest a part of their payroll taxes in a tax-free personal account with continued oversight by the Social Security Administration. Bill supporters claim that the personal account option would resemble the federal Thrift Savings Plan that Members of Congress and federal employees currently use to save for their retirement. Mr. Ferrara said that the legislation “has been scored by the Chief Actuary of Social Security as achieving full and permanent solvency in the program, without benefit cuts or tax increases. Indeed, over the long run, with the large personal accounts, workers would actually end up with higher benefits than promised under current law, and lower payroll taxes.” He added, “The key point arising from the official score is that reform plans with large personal accounts like Ryan-Sununu do not need to make any changes in current law benefit provisions, such as delaying the retirement age, or price indexing, to eliminate the long-term deficits of Social Security. The large accounts end up shifting so much of the current system’s benefit obligations to the accounts themselves that the long-term deficits are eventually eliminated through this effect alone.”
Testifying on behalf of the Brookings Institution, Peter Orszag argued that the administration’s proposal would do nothing to restore solvency for Social Security, stating, “Since accounts do not directly improve solvency and may well impair it, the only available policy options to restore solvency are reductions in benefits or increases in dedicated revenue. A fundamental tradeoff thus exists: Proposals that fail to dedicate additional revenue to Social Security will necessarily involve larger benefit reductions than plans that do dedicate additional revenue to the program. When push comes to shove, Americans seem to prefer relying on additional revenue or some combination of additional revenue and benefit reductions to mainly relying on benefit reductions.”
Vice President for Family Economic Security at the National Women’s Law Center Joan Entmacher addressed the impact of Social Security reform on women, stating, “Social Security is the largest source of income for most Americans in retirement: two-thirds of beneficiaries receive over half their income from Social Security. And with lower earnings, more time out of the labor force for caregiving, smaller pensions and savings, but longer life spans, women are even more reliant on Social Security than men. For four out of ten single women 65 and older, including widows, Social Security is virtually all they have to live on, providing 90 percent or more of their income; six out of ten single, elderly African American and Latina women get 90 percent or more of their income from Social Security. Without Social Security, more than half of all women 65 and older would be poor.” Ms. Entmacher also stressed the importance of survivor and disability benefits for women: “The current recipients of spousal benefits include millions of women who rely entirely on the spousal benefit, because they have not been in the paid labor force for the ten years (forty quarters) necessary to earn Social Security retirement benefits on their own work record. For example, 7.5 million women age 65 and older receive Social Security benefits as widows, and half of them do not qualify for any other benefit.” She also noted that these benefits “are especially important to women of color and their children. For example, African American women are twice as likely as white women to be receiving benefits as a young widowed mother and three times as likely to be receiving a benefit as the spouse of a disabled worker caring for children. About 18 percent of African American beneficiaries are children, compared to only 8 percent of all beneficiaries, and African American children are almost four times more likely to be lifted out of poverty by Social Security than are white children.”
Expressing her opposition to the Bush administration’s proposal to reform Social Security, Ms. Entmacher said that “with a private account, the timing and size of contributions, as well as overall investment returns, affect the size of the accumulation. If [a woman] took several years out of the labor force early in her working life to raise children, she will likely have a smaller account, because of the loss of compounding [interest] on contributions in the early years. In contrast, Social Security helps counteract the lifetime earnings gap between men and women…because it has a progressive benefit formula that provides lower earners with a higher percentage of their pre-retirement income, counts only the 35 highest years of earnings toward the average used to determine benefits, and makes the timing of earnings irrelevant.” She also noted that private accounts “are likely to provide little if any assistance” to women receiving spousal benefits: “The account of a worker who dies or is disabled at a young age would be small. It would provide little additional support for a woman raising young children, even if she had access to the funds in the account when disaster struck and she might not. The Administration has said that accounts could be left to anyone, so a young widow might not inherit. Even if she did inherit, the Administration has said that accounts must be saved until retirement, so a young widow might not have access to the funds until she retired.”
