What are the Policy Consequences of Delaying Social Security Reform?

Posted by Jeffrey Brown on Mar 28, 2011

Filed Under (Retirement Policy, U.S. Fiscal Policy)

Much has been written about the financial consequences of delaying action on Social Security reform (click here for one such report, notable for the fact that it is genuinely bipartisan).  Most of what has been written deals with the straightforward “mathematics” of delay.  In short, the longer we delay, the bigger the changes that will be required when Congress finally does act.  Regardless of whether you prefer that we return Social Security to financial sustainability via benefit reductions or tax increases, the point is that the longer we wait to do so, the bigger those benefit reductions or tax increases will have to be.  This is well-documented by policy experts across the political spectrum (even if the facts are somehow ignored by many of those that must run for re-election).

Today, though, I want to focus not on the simple mathematics of delay, but rather on what delay means for the politics, and what those politics, in turn, mean for the policy outcome.  In recent years, I have heard two very different views on the subject.  I am not sure which will prove to be correct, so let me just set them out here and invite comments if you have strong feelings on the subject.

The first view, which I first heard in a conversation that I had with a well-known and well-respected policy expert on the Democratic side of the debate (whose name I will not use simply out of respect for the fact that this was a private conversation) who pointed out that the longer we wait to address Social Security, the more likely it was that solvency would be restored through tax increases.  His political calculus was that the bigger the benefit cuts required, the less likely that the political will would exist to make such cuts, particularly given the clout of organizations like the AARP.  This particular individual viewed this as a desirable outcome, as it made it more likely we would keep the current benefit structure in place. 

The second view was explained last week in an op-ed published in the Washington Post.  Chuck Blahous, who is one of two Public Trustees for Social Security (he is the Republican trustee who spent 8 years in the Bush White House, although he was nominated to this current post by President Obama), argues that delay could result in the undoing of the program.  He says:

“Faced with a choice between wrenching benefit cuts and/or payroll tax increases vs. tearing down the wall between Social Security and the rest of the budget, legislators will tear it down. And that would be the end of Social Security as we know it. No more special parliamentary protections. No longer would benefit payments be shielded from the chopping block by the rationale that they were funded by separate payroll tax contributions. Social Security would be financed from the general revenue pool, and its benefits would thereafter have to compete with every other federal spending priority. The irony would be that the program was done in by its supposed defenders.”

These are two very different views from two highly respected experts on Social Security politics and policy.  Sadly, given the reluctance of Congress and the Obama administration to make Social Security reform a priority, we may be given the “opportunity” to find out which view is right.  That is unfortunate, as the better outcome would be to fix the program sooner rather than later, and leave the “what ifs” as a purely intellectual exercise.    

I’d be interested in what the readers think (and you can post your comment by clicking the link below) — does delay make it more likely that we will shore up the program by raising payroll taxes, or does it make it more likely that we will have to desert the 75+ year history of having the program financed by a payroll tax, or does it make it more likely we will have to cut benefits?  Or something else?  Thoughts welcomed …

3 Responses to “What are the Policy Consequences of Delaying Social Security Reform?”

  • allen white says:

    Since Republicans such as Sen. Coburn and Charles Krauthammer constantly tell us that the IOU’s in the Trust Fund are worthless … then cutting benefits or raising taxes now would only create more worthless IOU’s.

    So waiting is now the only solution left.

    Of course if the IOU’s were actually good, then we could talk about changes now … but alas based on Republicans statements they are not :-(

  • Jeffrey Brown says:

    Both sides have over-simplified the discussion of the Trust Funds. In truth, the issue is not that the IOUs are worthless. The issue is that Social Secuity owns trillions of dollars worth of bonds, and while those bonds are assets to Social Security, the represent an equal liability to the U.S. treasury. Given that we have run enormous deficits for most of the past 3 decades, Treasury used the past cash surpluses to cover these deficits (effectively issuing less public debt than they otherwise would have had to do). So when SSA comes calling to redeem those bonds, the U.S. Treasury has to get that money from somewhere, and our choices are 1) higher taxes, 2) lower spending on SS or other government programs (such as defense as you point out), or 3) issuing more publicly held debt. The point is that the trust funds are not like a bank account where we are holding claims against some third party.

    I agree, however, that if one has this view, then the goal should not be to increase the size of the trust fund. The goal of most of those on the side of reform is to bring the annual cash flow projections into some semblance of balance. But even if you think those changes are not required for a while, the point is that we probably need to act now so that we can phase the changes in gradually rather than whacking people all at once on the day the trust fund no longer has a positive balance.

  • Kush Maharael says:

    Long ago,conversations about businesses and what businesses were doing,and public policy regarding the public interest,and the regulatory application upon either persons,or entities,and the benefit/drawback options were the common discussion of ordinary people;in the barbers’ shop,beauty parlor,etc..Now I am lost to find what one would think would be the foremost social network topic:The continuing relationships between business,labor,consumer,and public policy,the public policies being jostled into play to mitigate undue stress on either side,and further plausible corrections.