Pros and Cons of Various Social Security Reform Strategies

Every American with a job is familiar with the social security tax.  It is such a fundamental part of the employed life that many barely even notice it chipping away at their paycheck, vaguely hoping that it will one day be returned to them.  That possibility of that hope being fulfilled becomes slimmer every day as the existing social security system slowly withers under an unsustainable budget and ever increasing recipient to contributor ratio.  There can be little doubt that social security must undergo some kind of reform to survive in the long run, but there is absolutely no consensus on how extensive that reform should be or even what direction it should take.

One of the popularly argued methods for reforming social security is to privatize the program, to some degree.  The introduction of individual accounts to the system would provide recipients with more flexibility in their annuitization options, rather than being forced to live on a strictly fixed income (Mackenzie, 2002, p. 4).  This would be considered an improvement by many who spent their whole lives investing in the system to be paid out at a rate inferior to what they could be making independently. It would also, ideally, reduce the dependence of recipients on the dwindling social security pool and thus reduce the drain on that pool (Mackenzie, 2002, p. 2).  Of course, this would also have the effect of drawing funds away from the social security pool so it would not refill as quickly either.  The money drawn away from social security to fund the individual accounts would weaken the social security benefits which, compared to private accounts dollar for dollar at the time of investment, return a much better value because social security benefits are fixed to the Consumer Price Index while private annuities do not, at least at this time, offer such inflation protection coupled with the lifetime payout structure that social security offers (Mackenzie, 2002 p. 2).  The question here is reliability versus flexibility.  The reform does not seem to offer much in the way of an answer to the issue of the recipient to contributor ratio that so greatly threatens the sustainability of social security.

Other reforms focus almost exclusively on this sustainability issue.  The changes proposed by Davies and Favreault (2003) would reduce the benefit payouts of the existing social security system to extend the program’s lifespan to 75 years.  This reduction in payouts is mitigated by combining the reforms with support from the Supplemental Security Income program that specifically focuses on ensuring that there is a livable minimum benefit for those who need it (Davies & Favreault, 2003, p. 4).  This reform would significantly reduce the benefits to those who are not in as great of need while, ideally, only slightly reducing benefits for those in great need to reduce the overall cost of the system without putting anyone out on the street.  This kind of reform seems to entirely miss the effect of Mackenzie’s discussion, that is it does not help to keep benefits to retirees at a level that makes retirement viable.

The ultimate goal of the social security system must be to protect retirees from poverty, so this effect cannot be ignored.  Burkhauser and Smeeding (1994) are impressed by the American government’s success with notably improving the financial conditions of the elderly in the last 30 years, but that some seniors, particularly widows and unmarried women, are not as well taken care of by the social security system (p. 2).  Rather than changing the fundamental structure of social security or reducing its aggregate payouts, these reforms would simply redistribute the payouts so they fill in the gaps that the current system leaves.  Burkauser and Smeeding’s (1994) proposal would reduce payouts to married couples and pass that saved money along to the surviving single member of the couple, leaving the budget unaltered and helping protect the remaining member, most commonly the wife, from inadvertent neglect by the system (p. 13).  This type of reform is most focused on improving the quality of service to recipients and makes no provisions for actually prolonging the system.

There is no shortage of reform advocates out there.  Each has their own angle and their own agenda and each leaves something to be desired.  These gaps are likely what keeps the issue so hotly debated and ultimately unresolved because each group can see their interests being woefully neglected.  The only fair solution would be for an unbiased group, though such a thing may be nonexistent, to mediate the discussion and ensure that all aspects receive due attention.  Counterpart to this ideal outcome is the frightening possibility that the system as it is, while far from perfect, is the closest thing achievable and that social security as we know it is just not a viable concept.  Since giving up is hardly an option, investigation and discussion about potential reforms remains an important pursuit.

References

Burkhauser, R. V., & Smeeding, T. M. (1994). Social Security reform: A budget neutral approach to reducing older women's disproportional risk of poverty. Center for Policy Research, 2, 1-19. Retrieved from http://surface.syr.edu

Davies, P. S., & Favreault, M. M. (2003, December 15). Interactions between Social Security reform and the Supplemental Security Income program for the Aged. Urban Institute. Retrieved from www.urban.org/UploadedPDF/411407_Interactions_Social_Security.pdf 

Mackenzie, G. A. (2002, May 19). The distribution phase of an individual acounts reform of social security: The potential role for private sector annuities. Urban Institute. Retrieved from www.urban.org/UploadedPDF/410533.pdf