Social Security Reform: Current Issues and Legislation

Dawn Nuschler
Specialist in Income Security

In recent years, an initiative by former President Bush to restructure Social Security through the creation of individual accounts moved Social Security reform to the forefront of the political debate. Although much attention has been focused on the issue, there has been no legislative action. In the Fiscal Year 2011 President's Budget, President Obama stated that he does not support the creation of individual accounts within the Social Security system. 

The spectrum of ideas for reform range from relatively minor changes to the pay-as-you-go social insurance system enacted in the 1930s to a redesigned, "modernized" program based on personal savings and investments modeled after IRAs and 401(k)s. Proponents of the fundamentally different approaches to reform cite varying policy objectives that go beyond simply restoring long-term financial stability to the Social Security system. They cite objectives that focus on improving the adequacy and equity of benefits, as well as those that reflect different philosophical views about the role of the Social Security program and the federal government in providing retirement income. However, the system's projected long-range financial outlook provides a backdrop for much of the Social Security reform debate in terms of the timing and degree of recommended program changes. 

The Social Security Board of Trustees projects that the trust funds will be depleted in 2037 and that an estimated 76% of scheduled annual benefits will be payable with incoming receipts at that point (under the intermediate projections). The primary reason is demographics. Between 2010 and 2030, the number of people aged 65 and older is projected to increase by 75%, while the number of workers supporting the system is projected to increase by 8%. In addition, the trustees project that the system will run annual cash flow deficits in calendar year 2016 and each year thereafter for the remainder of the 75-year projection period (2009-2083). When current Social Security taxes are insufficient to pay benefits and administrative costs, federal securities held by the trust funds are redeemed and Treasury makes up the difference with other receipts. If there are no other surplus governmental receipts, policymakers would have three options: raise taxes or other income, reduce spending, or borrow. 

Public opinion polls show that fewer than 50% of respondents are confident that Social Security can meet its long-term commitments. There is also a public perception that Social Security may not be as good a value for future retirees. These concerns, and a belief that the nation must increase national savings, have led to proposals to redesign the system. At the same time, others suggest that the system's financial outlook is not a "crisis" in need of immediate action. Supporters of the current program structure point out that the trust funds are projected to have a balance until 2037 and that the program continues to have public support and could be affected adversely by the risk associated with some of the reform ideas. They contend that only modest changes are needed to restore long-range solvency to the Social Security system. 

During the 110th Congress, six Social Security reform measures were introduced, five of which would have established individual accounts. None of the measures received congressional action. During the 111th Congress, four Social Security reform measures have been introduced.


Date of Report: February 25, 2010
Number of Pages: 30
Order Number: RL33544
Price: $29.95

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