Lawmakers in Washington are consumed in bitter partisan battles over healthcare, tax, budget, and infrastructure policy, disputes that threaten to sever any remaining threads of bipartisanship. But when the Trustees of the Social Security and Medicare trust funds release their 2017 reports, expected this summer, the nation will be reminded that we face an even more consequential policy challenge: How to ensure that Social Security and Medicare will be able to provide reliable support to the millions of elderly and disabled Americans who are counting on benefits. Bipartisan cooperation and trust are essential to meeting this challenge.
The House Ways and Means subcommittee on Social Security has set a hearing for Friday July 14 on the status of the trust funds.
In their 2016 reports, the Trustees warned that the trust funds supporting disability, hospital and retirement/survivors benefits would be depleted in 2023, 2028, and 2035, respectively. The reports also outline the size of the benefit cuts that would occur if the trust funds are allowed to run out. Disability benefits would be cut by 11 percent, hospital insurance payments would be reduced by 13 percent and retirement/survivor's benefit reductions would be an unthinkable 21 percent. There is no reason to think that their 2017 reports will tell a fundamentally different story.
Delaying action until a crisis is imminent, which too often has been Congress's approach, would not only have adverse impacts on beneficiaries, it would severely restrict the remedies available to address the problem. Waiting to act could have devastating consequences.
Right now, if we maintained full benefits for those already eligible to receive them, it would require a 19 percent cut in benefits for all future beneficiaries to eliminate Social Security's financing shortfall in the absence of additional income. But if policymakers were to delay action until Social Security's trust funds are depleted, even eliminating payments entirely for newly eligible beneficiaries would not keep the trust funds solvent.
The long-term trust fund shortfall in Social Security alone is already much larger, in relative terms, than the one corrected through landmark changes to the program in 1983. Among other measures, those amendments gradually raised Social Security's full retirement age from 65 to 67, subjected half of the benefits to income tax for the first time, delayed cost-of-living adjustments and brought new federal workers into the system.
Medicare has also required significant financial corrections in the past and will need more in the future. For example, the Affordable Care Act imposed an additional payroll tax on high earners and aggressively constrained payments to medical providers, but still left a substantial financing shortfall in place for Medicare's Hospital Insurance trust fund.
Fortunately, history shows that with sufficient advance notice, corrective policies can be phased in more gradually and less disruptively for workers and beneficiaries alike. The 1983 reforms to Social Security's normal retirement age are a successful case in point. The first retirees to feel its effects were those who turned 62 in 2000, some 17 years later. This year, the normal retirement age increased by another two months for those now turning 62 – a modest incremental change that took place with little public controversy or fanfare.
While larger reforms are necessary to address today's system shortfalls, "the sooner the better" principle still holds.
It is difficult to imagine any bipartisan solution that will not require some balance of increased taxes and, at least for some, moderation of benefit growth. We and the other members of the Bipartisan Policy Center's Commission on Retirement Security and Personal Savings certainly found this to be true when developing consensus Social Security policy recommendations.
These proposals included gradually raising the full retirement age, increasing the payroll tax rate and the amount of earnings to which it applies, slowing benefit growth for higher earners, and strengthening the minimum benefit available to the neediest beneficiaries.
Enacting policies to restore financial balance to these popular programs will pose political challenges. But the consequences of bipartisan inaction are far more dire – for beneficiaries, for taxpaying workers, for lawmakers, and for the nation as a whole. And time is running out.