Social Security, Entitlements: The Facts Say Fix Them

Social Security, Entitlements: The Facts Say Fix Them

By W. Bowman Cutter and Leslie C. Francis - March 16, 2013

A week’s worth of conversations between President Obama and congressional Republicans has opened the door. Now the big question is whether congressional Democrats and their most ardent supporters on the organized left can be open-minded enough to join the discussion in a constructive way, for they and the president are now in a position to make both fiscally responsible and politically smart moves on entitlements. They can fix huge long-term problems and in the process put the Republicans on the spot.

On Social Security, for example, can it be agreed that the following framework for the debate would be a good place to start?

Congress passed, and President Franklin D. Roosevelt signed, the Social Security Act into law in 1935. It became fully operational in 1940. The Social Security system, which has become the single most vital element in America’s “social safety net,” is not and was never meant to be a federally managed “savings account” for individual Americans.

It was and is a system of transfer payments -- payroll taxes collected from current workers and their employers are sent to the U.S. Treasury, which in turn sends out checks to beneficiaries (the retired, the disabled and survivors). Initially, the eligible retirement age for full benefits was set at 65. Today (for those born since 1960) full benefits can be received at age 67.

It is important to remember a few other relevant facts, as well:

-- In 1940 the life expectancy of an average American was something less than 65 years; today it is just over 78. The longer people live, the more Social Security has to pay out. It’s simple arithmetic.

-- Also in 1940, there were approximately 160 workers paying Social Security (FICA) taxes for every beneficiary. That ratio has dropped almost steadily during the intervening decades. In 1950 it was 16.5 to 1; in 1960 it was a tad over 5:1; and today it is less than 3:1. That arithmetic is simple, too, as are its implications.

-- Over the 70-plus years that Social Security has existed (and as payroll tax rates have been increased and eligibility requirements adjusted), revenues collected via the payroll tax for the Social Security Trust Fund have exceeded payments made to beneficiaries, to the tune of about $3 trillion. That’s the good news. The bad news is that, under current policies and unavoidable demographic trends, that so-called “surplus” will be zeroed out in 2033 -- a mere 20 years from now.

-- Once the tipping point (outlays over income) is reached, and unless changes are made to the program, payroll taxes will cover only 75 percent of the cost of Social Security. The gap, if allowed to occur, can only be covered by general revenues or by incurring more national debt -- or by reducing benefits. Again, the numbers -- the facts -- don’t lie.

Turning to Medicare, the facts -- untainted by ideological or partisan considerations -- are even more troubling.

-- The cost of health care in America is and has been increasing at a much faster pace (three times as fast, actually) than the overall cost of living;

-- Money spent on health care in the U.S. now accounts for one-fifth of our entire Gross National Product, which is up from one-seventh just 20 years ago;

-- Despite that level of expense, which is the highest per capita in the world, many other nations can accurately boast that they are home to much healthier people;

-- In 2010, 48 million Americans were on Medicare, and by 2030 (just 17 years from now), that number will increase to 80 million;

-- In 2011, the federal budget figures for the three main health benefits programs (Medicare, Medicaid, and Children’s Health Insurance) totaled $769 billion, or 21 percent of the total budget (compared to 20 percent each for Social Security and defense).

As is the case with Social Security, the arithmetic doesn’t lie. People may, for ideological or short-term partisan political reasons, ignore the facts. But denial does not provide a sound basis for serious discussion. Neither of our two political parties, for reasons of their own, is eager to get into this conversation. The Republicans don’t want to take the lead because it will only exacerbate their already serious “brand” problems as a party out of touch with “average” Americans. Democrats don’t want to engage in the debate either because many in the party simply don’t believe the facts, or they don’t want to forfeit the political advantage the issue gives them at election time.

It is true that no single policy change can be concocted that will solve all of the problems listed above, regardless of the politics. In fact, getting things under control will require a whole set of tough and politically unpopular choices. But, neither are the possible remedies any secret. They have been suggested by a range of thoughtful and honest people for years. Raising the retirement age, adjusting eligibility requirements, extending the payroll tax(es) and other ideas have to be on the table for discussion. Saying “No!” before the conversation even starts is worse than irresponsible, it’s dangerous.

As John Adams once said, “Facts are stubborn things.” They are also often inconvenient, uncomfortable and unavoidable. So, can we figure out how to start and focus the conversation there, rather than on myths, ideology or partisan orthodoxy? 


W. Bowman Cutter is a senior fellow at The Roosevelt Institute who was deputy director of the National Economic Council under President Clinton, and associate director of OMB in the Carter administration.

Leslie C. Francis is a Washington, D.C.-based public affairs and communications consultant who served as a staff member on Capitol Hill and as deputy chief of staff to President Carter. He also served as executive director of the DNC and DCCC.

W. Bowman Cutter and Leslie C. Francis

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