This week on Facing the Future we celebrated Social Security’s birthday. Wednesday, August 14th marked 89 years since President Franklin Delano Roosevelt signed the Social Security Act into law. Bob and Concord Coalition Chief Economist Steve Robinson assessed Social Security’s accomplishments, future challenges, and some myths about reform. Later in the show, former U.S. Senator from Indiana Dan Coats shared his experience with the debt and deficit through the lens of a long and distinguished career of public service in the federal government.
Robinson recounted the main accomplishment of the Social Security program. “It represents a major change in the way the United States dealt with the problem of elderly poverty and with retirement security. From the 1960s, when people had paid into the program for a few decades, up to the present, we’ve seen the elderly poverty level fall from about 30% to about 10% today. Clearly, Social Security has made a major contribution in reducing absolute poverty.”
“One of the things people don’t realize,” added Robinson, “is Social Security benefits are actually indexed to wages. As the economy grows, real benefits rise for each new generation or each new cohort of beneficiaries. So benefits are obviously much higher today than they were back in the 1960s.”
But despite its long history of successes, Social Security is now at risk. Bob highlighted the looming 2035 exhaustion of the Social Security trust funds. “It’s not that far away. We talk about 2035 – we used to talk about that as 30, or 40 years off into the future when The Concord Coalition started. And now it’s within the 10 year budget window that the Congressional Budget Office usually uses.”
Robinson explained the situation at hand and the potential consequences that lie ahead. “Essentially, what’s happening now is all those baby boomers are leaving the workforce and becoming the Social Security beneficiaries. Going back 30, 40 years, you had three workers for every beneficiary. We’re now approaching two workers for every beneficiary. When you have the math of going from three-to-one to two-to-one, given the ratio of wages and benefits, you have a financial problem looming ahead. As the trust fund reaches insolvency there won’t be enough workers paying taxes into the system to cover the cost of benefits, and so, as a result, once the trust fund is depleted you’ll have to either cut benefits across the board, or some speculate that instead of going out at the 1st of the month, benefits would be delayed until you collected additional revenue. In any given year, instead of paying 12 benefits and receiving 12 benefit checks, beneficiaries would only get 9 or 10 checks, because the cash flow is not sufficient to cover each monthly check.”
Senator Coats joined the program to reflect on what the debt situation looked like when he first entered public office in the 1980s, “It took 200 years for our country to get close to a trillion dollars in debt and all of a sudden this thing started to spike like crazy. Those of us who were running for office at that particular time said, ‘I don’t want to go home and tell people that this thing is going to be over a trillion dollars. How do I explain that?’ Well, Ronald Reagan brought us into the Oval Office and said ‘we got to pay the bills and I need to have your vote, and then we’ll go after it.’ I loved Ronald Reagan, but he wasn’t able to stop it. Nobody else has been able to stop it. This isn’t just a one party problem. There’s a problem with Republican Presidents, Democrat Presidents, Senators, Congressmen. How can you run a company, or how can you run a country with that kind of debt hanging over you? Those debtors at some point might want to turn on you. So it was a big issue for me when I was in the House, but also when I was in the Senate.”
Coats was in Congress when groundbreaking bipartisan legislation passed, specifically the 1983 Social Security reforms and the 1986 tax reforms. He provided his take on bipartisanship then and now, “A lot of people asked me ‘Why did it work? How did it work before?’ I think there’s only one way to deal with this issue and other issues. And that has to be bipartisanship. In 1984 it was Reagan who picked up the phone and called Tip O’Neill and said ‘Tip, we got a problem.’ Social Security was going to send out to every Social Security recipient, saying about a third of their Social Security is not going to be paid for. And so it took two parties to agree from not only a political standpoint, but from an economic standpoint going into the future. That saved Social Security for 25, 30 years. The only way we can do this is that both parties make an agreement that they will not turn this into a political issue. We needed to do it again, but it saved Social Security for many, many years.”
Hear more on Facing the Future. Concord Coalition Executive Director Bob Bixby hosts the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as The Concord Coalition team discusses issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.
