Former Secretary of State James A. Baker once called Social Security “the third rail of politics”—touch it and you’re dead.
So it is refreshing and encouraging to see two candidates for the United States Senate, Linda Lingle, a Republican from Hawaii, and former Senator Bob Kerrey, a Democrat from Nebraska, both develop and urge a comprehensive approach to Social Security solvency in the future.
The two candidates’ plans follow closely the recommendations of the Bipartisan Policy Center’s (BPC) Debt Reduction Task Force (Domenici-Rivlin) and the President’s Fiscal Commission (Simpson-Bowles).
In short, Lingle and Kerrey have endorsed two critical elements of Social Security solvency: increasing the cap on the amount of wages subject to payroll tax and gradually phasing in an increase in the age at which a beneficiary would receive full benefits.
Present law imposes a cap of roughly $110,000 on wages subject to the OASDI (Old Age, Survivors and Disability Insurance) tax in 2012 – a level that, under normal economic conditions, encompasses about 83 percent of total national wages. Both Domenici-Rivlin and Simpson-Bowles, however, proposed to raise the cap gradually to a level covering 90 percent of national earnings, which at current income levels would be equivalent to about $180,000. Congress entirely eliminated a similar cap for Medicare payroll taxes several years ago as Medicare reached a critical funding stage.
The Social Security Actuaries estimate that a 65 year old retiring in 2012 can expect, on average, to live almost 20 more years, roughly 6 years longer than a 65 year old retiring when Congress first passed Social Security. This extraordinary demographic change has increased the pressure on the program. Congress may want to side-step the issue for as long as possible, but “demographics is destiny.”
For all the controversy surrounding future solvency of Social Security, a solution to the problem is relatively simple compared to the challenge of securing solvency of other entitlements, such as Medicare and Medicaid. By increasing the wage cap sufficiently and gradually adjusting the benefit formula to account for longer lives, Social Security solvency for 75 years can be nearly attained.
Both Domenici-Rivlin and Simpson-Bowles also recommended changing the calculation of annual cost-of-living adjustments (COLAs) for benefits to more accurately reflect inflation and some additional means-testing. All of these changes allowed both commissions to propose a much-needed increase in the minimum benefit for long-term, lower-wage earners and to protect the most vulnerable elderly with a modest benefit increase.
At a time when most politicians run from even discussing Social Security reform, the stances taken by Lingle and Kerrey show that fiscal leadership and courage still exists.
Lingle formerly served on BPC’s Governors’ Council.
- The Gathering Fiscal Storm
August 22, 2012