Advancing a Free Society

Social Security: Chronicle of a Death Foretold?

Thursday, March 17, 2011

Despite a painful corrective action in 1977, Social Security finances remained on an unsustainable course during the following years. The first Social Security trustees’ reports of the 1980s warned Congress that insolvency—and the benefit disruptions that would accompany it—was imminent. Thus, the bipartisan Greenspan Commission was appointed in 1981 to make recommendations to avert this failure. After many false starts, twists, and turns, the commission’s final report ultimately laid the foundation for the law signed by President Reagan in April, 1983.

The 1983 Social Security reforms averted the projected near-term insolvency of Social Security. They gradually increased the Social Security eligibility age, they imposed income taxes upon benefits, they temporarily delayed cost-of-living adjustments, they expanded the program to cover federal employees, and they encompassed a number of other changes to taxes and to benefits. They built in a margin for error, in case their projections were wrong (some of this cushion, it turned out, was in fact needed). They ensured the financially sound operation of Social Security for decades to come. Having said that, the 1983 reforms were not perfect. They failed to place Social Security on a permanently sustainable course and, indeed, the problematic long-term trend line they left in place could be seen as unsustainable as soon as the law was signed.

In 1981-83, policy makers agreed on the immediacy of the Social Security problem. Today, not everyone sees the same problem, in immediacy or in size. The reasons for this have much to do with the nature of the 1983 reforms themselves.

According to the 2010 Social Security trustees’ report, Social Security began to run cash deficits last year. These deficits are starting small but will rapidly grow. By 2020, they will actually be significantly larger, even relative to our larger tax base today, than the annual deficits experienced in the crisis years of 1977 and 1982. Yet many believe that there is no real problem until decades hence, in 2037. Why?

The answer lies in the Social Security Trust Fund, whose large current balance was facilitated by the 1983 reforms.

Continue reading Charles Blahous at our sister site Defining Ideas

(photo credit: ProgressOhio)