Social Security, Present and Future

New York Times

By THE EDITORIAL BOARD
Published: March 30, 2013

In last year’s “fiscal cliff” debate, President Obama offered to reduce the annual cost-of-living adjustment, or COLA, for Social Security benefits, a spending cut favored by Republicans and scorned by Democrats. Republicans rejected the offer because Mr. Obama wanted tax increases in exchange, while Democrats said it would be too harmful. More recently, Senate Democrats did not include Social Security reforms in their budget and specifically rejected a COLA cut. The House Republican budget also steered clear of explicit cuts to Social Security, a move partly aimed at isolating Mr. Obama.

The question now is whether Mr. Obama will again propose to cut the COLA when he unveils his budget next week. We think he should not do so. The president might want to seem like he is willing to compromise by renewing his call for a COLA cut. But Republicans already spurned his offer and are unlikely to take him up on it now. They are more likely to paint him as a foe of Social Security, which would be reinforced by Democrats’ opposition to the cut.

Even if Mr. Obama avoided those pitfalls, a COLA cut is a bad idea, as we will explain in this editorial. It also is a distraction from the real problems of Social Security.

WHAT IS THE PROBLEM WITH SOCIAL SECURITY? The answer is a long-term shortfall. Social Security plans for solvency over 75 years, but because of demographic pressures and the weak economy, it is currently solvent only until 2033. After that, without reforms, it would pay about 75 percent of promised benefits.

Meanwhile, the nation is having a retirement crisis. Even before the recession, people had not saved enough to make up for the loss of traditional pensions. The downturn and slow recovery have made things worse. Less than half of households ages 55 to 64 have retirement savings, and of those, half have less than $120,000. Many near-retirees also have lost home equity or a job.

All that will leave most retirees heavily reliant on Social Security, which currently pays a modest benefit, on average, of $1,265 a month. Already, the majority of retirees — with annual incomes up to $32,600 — get two-thirds to all of their income from Social Security.
Even at higher incomes, up to $57,960, Social Security is the single biggest source, accounting for almost half. Only the top fifth of seniors, with incomes above $57,960, do not rely on Social Security as their largest source of income; most of them are still working.

Going forward, there is no escaping the reality that Social Security will be more vital than ever. To save it, we need consensus on direction and principles, among Democrats and across the aisle, along these lines:

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