Senate Finance Committee Republicans have some good advice for the Joint Select Committee on Deficit Reduction (sometimes known as the super committee): Fix Social Security now.
As part of a 21-page comprehensive set of recommendations on issues under Finance Committee jurisdiction, the Republicans note that “Social Security reform, aimed at solvency and integrity of the program, and not for near-term deficit reduction, needs to occur as soon as possible and should not be delayed.”
Further, the recommendations note:
Reform of the Social Security program to ensure sustainable solvency and protection against poverty will:
- Restore the long-term viability of the Social Security program upon which seniors, disabled workers, and dependents depend;
- Provide younger workers with clear signals and ample time to adjust their lifetime savings plans;
- Protect general government finances from irreversible deterioration and further future stresses;
- Help restore our AAA credit rating;
- Help guard against future ratings downgrades; and
- Send useful signals to financial markets of serious action on unsustainable entitlement promises.
As the recent 2011 trustees report showed, Social Security has entered into a time of permanent cash flow deficits, and failure to fix the system will mean that all Social Security recipients will face 22 percent across-the-board benefit cuts.
The Finance Committee Republicans follow their general recommendation with seven specific thoughts about how to fix Social Security, most of which are quite good. For instance:
The objectives of Social Security reform should be to ensure lasting solvency of the program over the infinite horizon and to maintain Social Security as a safety net program that protects against poverty in old age or when a worker becomes disabled.…
Comprehensive reform of the Disability Insurance component of the Social Security system, funded by Trust Fund assets that will be depleted as early as 2016, must be a part of any overall Social Security reform effort.
However, one of their specific recommendations is not nearly strong enough and has wording that could be interpreted as giving the Joint Committee permission to increase Social Security taxes:
Increasing payroll taxes or lifting the taxable wage cap means higher taxes on labor and small businesses, which will slow growth in jobs and the economy. Moreover, higher payroll taxes levied on employers are ultimately borne primarily by workers in the form of lower wages and other benefits. The JSC should be mindful of those negative economic effects in any deliberations over payroll taxes. [Emphasis added.]
The Joint Committee needs to be much more than “mindful” of the negative effects of increasing Social Security payroll taxes or increasing the taxable wage cap. It needs to just say no to them both.
As the Finance Committee Republicans noted, increasing Social Security payroll taxes would slow economic and employment growth. The Senate Finance Committee Republicans should have told the Joint Committee in no uncertain terms to avoid increasing Social Security taxes.
Further, the recommendations fail to include any concrete recommendations about how this reform is to be made other than some vague hinting around. Fixing Social Security requires some specific steps such as increasing the retirement age to reflect the longevity changes that have already taken place.
In addition, the way that annual COLA changes are made should be improved by switching to the Chained CPI index and changing the benefit formula to focus scarce resources on those who need them the most by reducing benefits for upper-income retirees.
Without hard decisions like these specific steps, Social Security’s financial problems will continue to blight the retirement security of today’s workers.