How has history influenced your current position with Social Security? With this in mind, what do you suggest for the future of Social Security? When I first took office, the future looked bleak: the wars, tax cuts, and drug programs endorsed by my predecessor established a one-year deficit of more than $1 trillion and our best projections told us we would stand to run $8 trillion more in deficits over the next decade.[1] The financial pressure from our Great Recession exacerbated these relics of the Bush administration, costing us another $3 trillion initially, and $1 trillion in necessary stimulus and bailouts to avoid further catastrophe. Indeed, I would have immediately started focusing down the deficit if we hadn't taken office amid a crisis.[2]
We are in the midst of rebounding from these short-term shocks, and we must now face a greater, long-term threat to our nation’s fiscal stability. Today, I want to address one of our nation’s most hallowed social programs whose reform for long-term sustainability is essential to our continued growth and success as a nation: Social Security.
As a nation, we must first face the challenge for what it is: The massive demographic shift to an older population in America is happening here and now, and as the Baby Boomers retire, we will draw more and more benefits out of Social Security relative to contributions into it. Even now, the system pays out more than it receives; by as early as 2037, the Trust Fund will go bankrupt, and we will no longer be able to cover the same seniors that paid into the system their whole lives.[3] In other words, Social Security is no longer solvent in the long-term and it must be reformed. Furthermore, acting sooner rather than later will make sure that the program will continue to provide the successful support of our elderly population that it has for generations [4]
But we must also not forget that Social Security represents a basic agreement of our society and a major source of income to recipients who are 65 or older.[5] Thus, to establish a more firm footing, we must carry out this reform without risking the benefits of current or future retirees, and without placing Americans' gauranteed retirement income to the mercy of fluctuations in the stock market. [6]
The reform of Social Security, instead, should be accomplished through a bipartisan commission that considers progressive solutions such as raising the income cap on which payroll taxes are levied and improving individual retirement savings.[7] Raising the income cap is one promising solution, given that most Americans are paying payroll taxes on 100% of their income, but no yearly income is taxed above approximately $100,000. This tax is clearly regressive, letting the top 3 to 4% of earners completely off the hook.[8] I’m sure my friend Warren Buffet wouldn’t mind giving up a bit more of the $50 billion he makes above the current cap to help increase the solvency of the Social Security system.[9] Beyond the system itself, we must make it more attractive and easier for Americans to save for retirement, by using the demonstrated benefits of automatic enrollment and by improving employer pension plans. There is significant room for improvement on this simple policy mechanism, as about half the workforce does not have access to retirement plans through their employer.[10]
Although I would address any and all possible reforms, I believe that cutting benefits and raising the retirement age are two suboptimal outcomes, and that [11] privatizing Social Security can be likened to “gambl[ing]" millions of gauranteed retirement plans on the stock market.[12]
In sum, I believe Social Security is a “fundamentally sound system,” that simply requires changes to address the changing demographics of the American public.[13] We can work towards this solution with a strong bipartisan effort to rise above traditional partisan squabbles, efforts to increase the savings rates of Americans, and through progressive, long-term solutions such as an increase of the payroll tax cap.
Editor's Note
President Obama faces a looming fiscal crisis that is nearer than it was during the Bush and certainly the Clinton administration. He also faced the Great Recession and significant deficits brought about by the Bush administration. Based on our analysis thus far, then, he faces the short-term and long-term problems that require decisive solution in the near future. Obama is also a strikingly moderate figure in his stances; although this alienates some of his very liberal base, it should allow for partisan consensus even in this age of intense political polarization. Finally, Obama understand the need to control costs and the commitment to maintain benefits, which may provide for a perfect middle ground solution, if not for a permanent solution to Social Security solvency, then at least for a good start, as the 1983 amendments were, in their time. Furthermore, increasing the payroll tax base only on the wealthiest Americans seems to be a proposal which could gain bipartisan support and represent a positive path for reform.
[1] Barack Obama, January 15, 2010 State of the Union Address. Retrieved from http://www.huffingtonpost.com/2010/01/27/state-of-the-union-2010-full-text-transcript_n_439459.html
[2] Ibid
[3] Is Social Security on the table as Obama, Congress tackle the deficit? (2011). CBS News. Retrieved from http://www.cbsnews.com/8301-503544_162-20053632-503544.html
[4] FACT SHEET: The President’s Framework for Shared Prosperity and Shared Fiscal Responsibility. (2011). The White House. Retrieved from http://www.whitehouse.gov/the-press-office/2011/04/13/fact-sheet-presidents-framework-shared-prosperity-and-shared-fiscal-resp
[5] Seniors and Social Security. The White House. Retrieved from http://www.whitehouse.gov/issues/seniors-and-social-security
[6] Obama, 2005 State of the Union Address
[7] Obama, 2005 State of the Union Address
[8] CBS News, 2011
[9] Dixon, Kim. Obama backs lifting income for Social Security. (2011). Reuters. Retrieved from http://www.reuters.com/article/2011/04/19/usa-obama-socialsecurity-idUSN19806820110419
[11] Cutting benefits & raising retirement age are wrong answers. Barack Obama on Social Security. On The Issues. Retrieved from http://www.issues2000.org/economic/Barack_Obama_Social_Security.htm
Is Obama in the position to create "permanent" Social Security reform that is actually permanent? If not, what will it take?
ReplyDeleteVery interesting analysis. I suspect that Obama would accept other compromises on the basis for COLA adjustments (wages instead of CPI) and maybe even an increase in the retirement age. Don't underestimate the appeal that going down in history as the president who passed health care and social security reform will hold for him! In answer to Joe's question, I would say that he is not in such a position to pass this now, but if he wins a solid reelection victory, he might be.
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