Deficit-cutting ax may fall on Social Security

Cuts in Social Security benefits might be used as one means to reduce the burgeoning federal budget deficit. But are there better ways to deal with the problem?

David R. Francis

The Social Security system today faces a threat greater than the drive for partial privatization by George W. Bush.

"That's not hyperbolic," says Nancy Altman, codirector of Social Security Works, a group dedicated to preserving the system that provides income for 50 million retirees, the disabled, millions of children, and more. Her fear is that President Obama's bipartisan National Com­mis­sion on Fiscal Responsibility and Reform will recommend cuts in Social Security benefits as one means to reduce the burgeoning federal budget deficit. If 14 of 18 commissioners agree on a deficit-cutting plan, it could be passed at a lame-duck session of Congress without the extensive hearings and discussions that normally precede such an important measure.

"There would be little chance for the public to have an influence," says Ms. Altman.

Public opinion polls consistently show that Americans don't want Social Security trimmed. The median retiree benefit at present is about $14,000 a year, hardly lavish. But Altman suspects the commission might sell Congress a plan to cut benefits, along with other deficit-reducing measures, as a necessity, albeit an unpopular one.

Congress, in passing health-care reform, didn't achieve major cost cuts, says Dean Baker, codirector of the Center for Economic Policy and Research, a liberal think tank in Washington. The medical, health insurance, and drug industries were too powerful, he says. So conservatives are striving to get savings out of Social Security. What's developing is a spirited battle between right and left. When Alex Lawson, communications director of Social Security Works, caught former Sen. Alan Simpson, co-chairman of the commission, outside the Dirksen Senate Office Building after a recent closed-door session of a commission study group, Mr. Lawson's video of the exchange caught fire online.

Mr. Simpson said Social Security payments exceeded revenues as of several weeks ago, that the commission was considering 15 options to deal with this problem, and that it wanted to "stabilize" the system, not balance the budget on the backs of Social Security recipients. His use of the term "lesser people" caught the attention of MoveOn.org, a liberal political-action group.

With unemployment high and many jobless choosing early retirement, experts aren't surprised that Social Security has seen revenues drop and costs rise. Altman points out that payroll tax revenues and interest on the $2.5 trillion Social Security Trust Fund are adequate to cover benefits. Trustees of that fund and the Medicare Fund were due to issue their annual report in the spring, but the US Treasury says it won't be ready until August or so, because of difficulty in calculating the effect of health-care reform.

Approaches to dealing with Social Security vary. Brian Riedl, an expert at the conservative Heritage Foundation, calls for substituting lower price inflation for higher wage inflation in setting initial benefit levels, and for gradually raising the eligibility age by another two years.

But, Altman says, each year of delayed eligibility amounts to a 6 or 7 percent benefit cut. She proposes instead boosting the amount of income subject to payroll tax from its present level of $105,800 a year, diverting revenues from a revived estate tax to Social Security, and adding a new tax on financial transactions in order to boost Social Security benefits by 5 percent.

Merely making all income subject to the payroll tax would cure the problem, says Mr. Baker.

• David R. Francis writes a weekly column.