Social Security Financing Reform: Lessons from the 1983 Amendments

Publication Date: July 1997

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Labor

Type:

Abstract:

In April 1997, the Social Security board of trustees released its latest appraisal of Social Security’s financial condition. As in earlier reports, the board projected that the system will face long-range problems under its “best guess” or middle-of-the-road forecast. When changes were last made to Social Security in 1983, the prognosis was that it would be solvent for 75 years. Since that time, actuarial deficits have reemerged and grown worse. The current report projects insolvency in 2029.

As the prospects grow for another round of reform, a number of observations can be made about the 1983 amendments that may be helpful in considering future changes. Various misperceptions of their intent have developed over the years, among them being that Congress wanted to create surpluses to “advance fund” the benefits of post World War II baby boomers. This view has affected congressional debates ranging from cutting Social Security taxes to adopting a constitutional amendment to balance the budget. Some would argue that the budget deficits the government has run since 1983 have subverted the amendments. There is, however, little evidence to support the view that the surpluses were intended to pay for the baby boomers’ retirement. The record suggests that the goal was to assure that the system would not be threatened by insolvency again, not to advance fund future benefits.

Other little-understood aspects of the amendments include how Social Security’s financing problem was measured. While using pessimistic assumptions was considered prudent in dealing with the near term, using them to assess the long run would have been seen as exaggerating the problem. However, using middle-of-the road assumptions left no room for a later worsening of assumptions, which in fact occurred. Moreover, discussions in the key congressional committees revolved around the average 75-year deficit and how much the various options would affect it. There was little understanding that a period of surpluses would be followed by a period of deficits — or that solvency was not achieved on a pay-as-you-go basis.

The role of a select panel formed by President Reagan and congressional leaders in an attempt to reach a bipartisan solution also is not well understood. The 1982/1983 National Commission on Social Security Reform is often cited as a model for resolving otherwise intractable political problems. Although the Commission brought various factions together and served as a framework for later action, its plan may have been the product of only a few of its 15 members working with officials of the Reagan Administration. Moreover, the threat of insolvency — projected then to occur in less than 6 months — may have been the real catalyst for action.

Finally, while today there is widespread recognition that looming demographic shifts may significantly raise federal entitlement spending early in the next century, this was much less of a concern in 1983. This is not to suggest that the demographic bulge of retiring baby boomers was not observed. It was, but Social Security’s financing problems were viewed and tackled in isolation. Today, they are seen much more as a segment of the strain that total federal retirement and health care spending may create. Hence, to some extent the context for reform may have shifted.