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Wednesday, March 2, 2011

Social Security Reform: Current Issues and Legislation

Dawn Nuschler
Specialist in Income Security

Social Security reform has been an issue of political debate in recent years. Currently, there is renewed congressional interest in reform in part due to the National Commission on Fiscal Responsibility and Reform established by President Obama in February 2010, which was tasked with making recommendations on ways to improve the long-term fiscal outlook. On December 1, 2010, the President’s Fiscal Commission released its final report, which includes a number of proposed changes to the Social Security program. On December 3, 2010, a majority of commission members expressed support for the recommendations (11 out of 18 members), three short of the super-majority needed to require congressional action on the recommendations.

The spectrum of ideas for reform ranges 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 fund will be exhausted in 2037 and that an estimated 78% of scheduled annual benefits will be payable with incoming receipts at that time (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 76%, while the number of workers supporting the system is projected to increase by 8%. In addition, the trustees project that the system will run cash flow deficits in 2010 and 2011, and again in 2015 and each year thereafter through the end of the 75-year projection period. When current Social Security tax revenues are insufficient to pay benefits and administrative costs, federal securities held by the trust fund are redeemed and Treasury makes up the difference with other receipts. When there are no surplus governmental receipts, policymakers have three options: raise taxes or other income, reduce other spending, or borrow from the public (or a combination of these options).

Public opinion polls show that less 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 fund is projected to have a positive 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 111
th Congress, four Social Security reform measures were introduced. None of the measures received congressional action. During the 112th Congress to date, one Social Security reform measure has been introduced.

Date of Report: February 14, 2011
Number of Pages: 36
Order Number: RL33544
Price: $29.95

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