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Even more technical detail about Social Security

So I've been meaning to give an update on Social Security since writing Volume 1, but hadn't gotten around to it. But I found a very interesting document at the end of December along the lines of what we discussed - changes to Social Security and what effect they might have.

First, for a bit of background: Sam Johnson, a Republican Congressman from north Texas, is the chairman of the subcommittee in charge of Social Security. In this role, he introduced a bill to make certain changes to SS and then asked the SSA to comment on what they would do. This is their response.

I think it is important to note: the fact that the bill was written does not mean that Rep. Johnson actually wants to make these changes. Most likely, it was created simply so that the SSA would "score" it, determining what it would do to the solvency of the system.

If you look at the document you'll see it it quite technical - I'll admit that I don't fully understand all of the exact changes proposed. But Figures 2/3, on pages 5/6 gives a nice illustration of the broad situation. Under current law, they project that the Trust Fund will be exhausted in the mid-1930s, at which point promised benefits will be higher than projected income. This will result in an immediate scaling-back of around 20%, which will continue for the entire life of the program. If all 15 provisions of this bill were put into place, it would bring SS into "actuarial balance" - a bit better in fact.

Looking at Table A, you can see that the benefit cuts necessary to get to this balance are fairly severe: retirement age would eventually rise to 69 (it is currently on the way to 67) and cost of living adjustments (COLA) would decrease significantly - couples with income greater than $170k would no longer get COLAs. Of course, coming from a Republican, there are no tax increases considered; item 10 is actually a small tax cut. If half of the actuarial deficit were instead closed by increasing the cap on withholding, then the necessary benefit cuts could be reduced accordingly.

In any case, this is an interesting document - if nothing else it provides some insight into the steps by which policy changes are considered. But it doesn't change my overall view on the solvency of the system; I would be in favor of reducing the actuarial deficit by 50% today, split equally between benefit reductions and increased withholding. For the benefit reduction piece, I think that making a number of small changes - in the manner suggested by Rep. Johnson - is the most sensible plan.

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