Current Social Security Issues

Publication Date: May 1998

Publisher: Library of Congress. Congressional Research Service

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Research Area: Banking and finance

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Abstract:

Social Security is the focus of intense public interest. The system is projected to have long-range funding problems, and public skepticism about its future persists. Although the system’s income currently exceeds its outgo, its board of trustees projects that on average over the next 75 years its expenditures will exceed its income by 16% and by 2032 its trust funds will be depleted. This adverse outlook is mirrored by public opinion polls where fewer than 50% of respondents express confidence that Social Security can meet its long-range commitments. Accompanying this skepticism is a growing awareness that Social Security will not be as good a value in the future as it is for today’s retirees. Until recent years, a typical retiree could expect to receive far more in benefits than he or she paid in Social Security taxes. However, because Social Security tax rates have increased and the age for receipt of “full” benefits is scheduled to rise from 65 to 67, it has become increasingly apparent that the system will be less of a good deal for future recipients.

These concerns and a belief that economic growth could be bolstered by changes to the system have led to a number of proposals for varying degrees of reform. They range from restoring long-range solvency with as few changes as possible to totally revamping the system toward private-sector models. Such a range of ideas was presented in the January 1997 report of a legislatively mandated Social Security Advisory Council. Bills designed to reform Social Security, in whole or part by using private accounts, also have been introduced in the 105th Congress.

The potential economic toll of federal entitlements overall also has raised the specter of change. The concern is that if left unchecked, entitlement spending will place a large strain on federal budgets far into the future, limiting fiscal policy options and forcing future generations to bear an enormous tax burden, especially when post-World War II baby boomers retire and draw on these programs. One approach frequently discussed is means testing. Means testing is shorthand for targeting entitlement benefits on those most in need. Such proposals often include Social Security because it accounts for 40% of all entitlement spending. A related concern arises from the provision of automatic inflation adjustments to Social Security and other entitlement benefits, as well as to various aspects of the income tax system. These adjustments are based upon the U.S. Department of Labor’s Consumer Price Index, which has been criticized for possibly overstating inflation. Overstatement of inflation translates into higher benefit outlays and lower tax revenues.

In his State of the Union address on January 27, 1998, the President pledged action on the issues early in 1999. He stated that he wanted to conduct bipartisan forums around the country this year to draw out the public’s views (one of which has already occurred), hold a White House Conference on Social Security in December, and convene congressional leaders next year to craft bipartisan legislation. Speaker of the House, Newt Gingrich, has suggested forming an intergenerational panel to conduct a national dialogue on the issues and a high-level commission to forge a bipartisan plan. This approach is reflected in H.R. 3546, introduced by Representative Archer et. al. and passed by the House in April 1998. No Senate action has yet been taken on the bill. The Administration has argued that the panels are unnecessary.