Social Security Reform: Current Issues and Legislation

Dawn Nuschler
Specialist in Income Security

Social Security reform has been an issue of interest to policymakers for many years. In recent months, Social Security program changes were discussed in the context of negotiations on legislation to increase the federal debt limit and reduce the federal budget deficit. The Budget Control Act of 2011 (P.L. 112-25), which was signed by President Obama on August 2, 2011, established a Joint Select Committee on Deficit Reduction. The Joint Committee is tasked with recommending ways to reduce the deficit by at least $1.5 trillion over the fiscal year period 2012 to 2021. Social Security program changes may be among the deficit reduction measures recommended by the Joint Committee. Under the Budget Control Act of 2011, automatic spending reductions would be triggered if the Joint Committee or Congress do not approve the recommendations. Social Security would be exempt from any automatic spending reductions.

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 funds will be exhausted in 2036 and that an estimated 77% 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 78%, while the number of workers supporting the system is projected to increase by 7%. In addition, the trustees project that the system will run a cash flow deficit in each year 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 funds 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 funds are projected to have a positive balance until 2036 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 111th Congress, four Social Security reform measures were introduced. None of the measures received congressional action. During the 112th Congress, several Social Security reform measures have been introduced; none have received congressional action.


Date of Report: September 15, 2011
Number of Pages: 38
Order Number: RL33544
Price: $29.95

Follow us on TWITTER at http://www.twitter.com/alertsPHP or #CRSreports

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.