The conditions for social security reform are perfect – except for one thing

It feels like the 80’s again. And that could mean an opportunity for social security reform.

High inflation, a turbulent stock market and a recession loomed before the 1982 Social Security reform. Conditions are now becoming more similar, but will reform ever get off the ground?

Today’s economic climate mirrors many of the conditions of the 1980s, when Social Security saw its last sweeping changes, experts say, and while that could help spark a new round of reforms, the current political climate could make change difficult for the foreseeable future.

Changes that went into effect in 1983 included taxation of Social Security benefits, the inclusion of federal employees in Social Security for the first time, and an increase in the retirement age.

“What happened when inflation was so high before — Social Security underwent its biggest reform in history,” said Mary Johnson, Medicare and Social Security analyst with the Senior Citizens League, a nonpartisan group representing seniors.

Still, there were some differences in the early 1980s.

“The big difference from 1982 was that Social Security was in crisis and we were weeks away from defaulting. Now we’re 13 years away,” Johnson said. “Also, in 1982 we were in a recession. Whether we now have a recession remains to be seen.”

The Social Security Administration has said the funds that Social Security will use to pay benefits will be exhausted by 2035. This long term could delay the social security reform that experts urgently need.

“We have 13 years to go and strong employment numbers right now,” Johnson said. “But the longer you wait, the bigger the changes need to be – the bigger the cuts will be. It is in everyone’s best interest to bring everyone together now.”

The Committee on Good Federal Budgeting, a nonprofit, nonpartisan public policy organization, predicts the Social Security Trust fund could default even sooner due to factors including the cost of living allowance (COLA), which will be officially announced in October, the highest since four decades.

The CRFB expects COLA to be in the 8.7% to 9% range, which would push the bankruptcy date up a year or two, according to group president Maya MacGuineas.

While the Social Security Administration is forecasting what benefits beneficiaries will qualify for, it raises unrealistic expectations because no one knows what cuts could come to the program, MacGuineas said.

“Every year that we wait, it becomes harder for recipients to plan. The program will not perform as promised,” MacGuineas said. “If you wait until the last minute, the changes are more likely to be abrupt.”

Without reform, the Social Security system will automatically adjust and benefits will fall by 22% to 25%, Johnson said.

“Conditions are more than ripe for change. The problem is the inaction of Congress,” said Rep. John Larson, a Connecticut Democrat. “Everyone is aware of the problems. Either we have to improve the program and pay for it, or we have to cut the program. This is not a claim. It is a deserved achievement that people have paid into.”

According to the Pew Research Center, Democrats and Republicans are united in their skepticism about the future of Social Security. Among those still working, identical proportions from each party – 42% – say they expect no benefits if they stop working.

Despite doubts about the soundness of the Social Security system, most Americans reject the idea of ​​cutting benefits for future retirees. When asked about the long-term future of Social Security, just 25% say some benefit cuts need to be made for future retirees, while 74% say benefits shouldn’t be cut in any way, the Pew Research Center found.

Whether it’s possible to get Social Security reform before the eve of 2035, “one always hopes,” Larson said.

Larson’s proposal, Social Security 2100: A Sacred Trust, calls for an increase for all beneficiaries averaging 2% in benefits to offset what he calls “unreasonable” COLA increases since the 1980s.

He also suggested using a different formula to calculate the COLA to account for the costs incurred by seniors, such as e.g. healthcare costs. It also calls for a new minimum benefit to be set at 25% above the poverty line and linked to wage levels to ensure the minimum benefit does not fall behind.

Another proposal by Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) aims to extend Social Security’s ability to pay by 75 years by increasing taxes on the wealthy and making benefits more generous .

Neither Larson’s nor Sanders-Warren’s proposals made much political progress.

With social security threatened in 2035, the changes ahead are expected to be as massive as the changes in the 1980s.

“We’re going to see changes of this magnitude again,” said Richard Johnson, a senior fellow in the Center for Income and Benefits Policy at the Urban Institute, where he leads the pension policy program.

“We can always hope for changes before 2035, but I don’t count on it. Historically, Social Security reform comes at the last minute,” Johnson said.

Johnson expects the reform will involve benefit cuts or tax increases, or both.

“When you combine some of the pain with some of the sweeteners, it’s more politically palatable,” Johnson said.

In 2020, presidential candidates talked about changing Social Security, but nothing happened on either proposal.

“Not being able to pay the full benefits in 13 years time makes planning difficult. Retirement is something you want to plan for your entire life, especially when benefits could be cut by 25%,” Johnson said.

https://www.marketwatch.com/story/conditions-for-social-security-reform-are-perfectexcept-for-one-thing-11663947857?rss=1&siteid=rss The conditions for social security reform are perfect – except for one thing

Brian Lowry

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