The Social Security trustees’ report released yesterday moved up the projected date on which the program’s trust fund will become insolvent from 2036 to 2033. “Never since the 1983 reforms have we come as close to trust-fund depletion as we are right now,” trustee Charles Blahous is quoted as saying in several news reports.
That comment is literally correct — but easily misunderstood. Insolvency is now 21 years away; back in 1983, it was three months away.
On April 20, 1983, President Reagan signed major Social Security reform legislation, which Congress had passed by large bipartisan majorities. The program’s actuaries had warned that — unless policymakers acted — Social Security would be unable to continue paying full benefits in July 1983. But soon after the law’s enactment, the trustees certified that the trust funds wouldn’t become insolvent until sometime outside their 75-year window for evaluating the program’s long-term finances — that is, until after the late 2050s.
Since then, a variety of factors, chiefly economic and demographic, have brought the expected exhaustion date to 2033. (The projections vary every year; in the mid-1990s, the trustees estimated that exhaustion would occur as early as 2029.)
Yes, we’re closer to trust-fund exhaustion now than we’ve been since 1983 … but there’s a vast gulf between three months and 21 years.
While Social Security isn’t in crisis, 1983 does have lessons for us. One is the importance of bipartisanship; much of the credit for pushing a deal — sometimes ascribed to the so-called Greenspan Commission — actually belongs to then-Speaker Tip O’Neill and President Ronald Reagan and pragmatists from both parties.
Another lesson is the importance of phasing in changes gradually. The 1983 changes — which included accelerating already scheduled payroll tax increases and eventually raising the full retirement age — had relatively little impact on beneficiaries then on the rolls. That’s important, because current beneficiaries have little opportunity to make up for benefit cuts by working or saving more. (It’s also easier politically to gain acceptance of gradual changes than sudden ones.)
We co-wrote a paper with Chuck Blahous in late 2010 in which we noted that policymakers ought to act soon to make Social Security solvent — not because the program is in crisis, but because prompt action would enable us to spread out the needed adjustments in revenue and benefit formulas and help people plan their work, savings, and retirement. As we concluded: “Reasonable and well-intentioned people will have differences over the best way to resolve the Social Security shortfall. We share a common interest, however, in taking action to do so at the earliest practicable time.”