Social Security debate rages back after lying dormant for 40 years

If it seems that the issue of Social Security reform roared back into our living rooms this past week after lying dormant for a long time, that perception is pretty close to reality.  The last time this country made major changes to Social Security policy was forty years ago, in 1983.

Coming out of the 2022 elections it became clear that the first partisan fight would be over raising the debt ceiling. Rumors flew during and after the election that the GOP wanted to require cuts in entitlement programs – Social Security and Medicare – before they would vote to raise the debt ceiling.  President Biden called their bluff in a dramatic fashion during the State of the Union, promising he would veto any cuts to those programs, and he seemed to get most of the GOP to agree with him not to cut Social Security, Medicare or programs for the elderly.

Where does that leave us now as we are thrust suddenly into a raging debate over social security?  And it is also worth asking: what other federal or state policy has remained in place, without change, for FORTY years as social security policies have since 1983?

The story of how that policy came about, and why the policy changes have worked, present cautionary tales for anyone willing to touch the third rail of politics, social security policy.

In the late 1970s and early 1980s it became clear that the long run financing of the social security (and Medicare) programs would be seriously challenged.  These programs were facing serious fiscal challenges that only emerged then.

First, the program faced demographic problems. The retirement of the very large baby boom population (born between 1945 and 1964), but also a rising longevity rate for that population, led to a significant rise in the population needing retirement programs.

Nationally, baby boomers are either retired or approach retirement, and number over 70 million nationally (20% of the population) and over 940,000 in Missouri (15% of the population). People are also living longer: in 1945 life expectancy was 65 years (coincidentally the age of retirement from social security) but by 1980 it rose to 74 years, and to 77 years today, meaning the average person was living more years collecting Social Security and Medicare.

Sluggish economic growth from 1974 into the 1980s, caused mostly by two major oil crisis which decimated the manufacturing sector in Missouri and the rest of the Midwest, also was a major factor leading to fiscal problems for social security and Medicare.

Although reforms passed in 1977 resolved some of the problems, the long run fiscal problem remained in the early 1980s. This led President Ronald Reagan in May 1981 to propose a rather radical reform – significantly reducing the early retirement benefit for social security, for those retiring between ages 62 and 65.

What happened next should be a cautionary tale for those eager to take on social security policy today.  The Reagan policies were soundly rejected in a unanimous 99-0 vote by the US Senate, including every member of the GOP.

Learning the lesson that social security was indeed the third rail of politics, President Reagan proposed the creation of a Bipartisan Commission for Social Security Reform.  Chaired by Alan Greenspan, this Commission proposed a series of reforms, passed in March 1983, and these significant changes to social security remain largely intact today, forty years later.

Several lessons can be learned from this history. Entitlement programs, which pay benefits to over 66 million retirees nationwide and 1.3 million in Missouri, are extremely popular since those on Social Security and Medicare paid into those programs their entire working lives, establishing what they view as a sacred trust to receive the benefits.

Making changes to these programs that directly affect beneficiaries is politically difficult.  The two parties have a significant philosophical disagreement about how to solve these fiscal problems, with Republicans generally favoring cuts to the benefits, and Democrats generally favoring tax increases.

Reaching agreement on a package of policy changes proved exceptionally difficult in the 1980s and took careful bipartisan negotiation, most of it behind closed doors over the course of two years, between factions representing President Reagan and then Speaker of the House Tip O’Neill.  This cannot be done with one party demanding drastic changes or attaching changes to legislation such as the debt limit.

Finally while the official reports from the Trustees of Social Security and Medicare do say that the Trust Funds for these programs will be exhausted in 2035 and 2028, respectively, the relevance of this is very much misunderstood.

It is common for some to use words like “bankrupt” or “crisis”, usually a cynical attempt to raise fears about the future of these programs.

First, these programs have never gone bankrupt, and they never will go bankrupt; Congress will not let them go bankrupt, for political reasons (the aged vote!).

Second, to suggest that these programs need to have a long run fiscally balanced trust fund, similar to private investments, stems from a complete misunderstanding of how public insurance programs like Social Security and Medicare work, since they are backed up by the taxpayers.

Third, an oddity of policy is that only a small portion of Medicare has a trust fund, and most of the program is financed directly from general revenue sources, making the notion that Medicare could go “broke” even more irrelevant.

It is refreshing that our country is finally having a discussion about how to finance the retirement years of the current retirees. We need to honor the sacrifices of the baby boom generation and those who fought in WWII and survived the Great Depression, including their payments into the Social Security and Medicare systems, by having a calm, reasoned discussion about how to set long term, sustainable policy for our retiree income and health programs.