There is no one I can find who actually proposes cutting Social Security or even making prospective changes for anyone close to retirement.
Changing a formula so that future benefits are lower than they would have been otherwise is not cutting benefits. So, if you thought you were getting a four percent raise, but you only received 3%, did you take a cut in pay?
Nevertheless, the facts never get into the way of politician claims to the contrary. However, even in the case of Social Security there is precedent for cutting benefits prospectively. Why, because the Trustees saw a coming financial problem that needed to be corrected. Note below that forty-years ago the demographic problem was identified. That is also part of the problem today.
Today our politicians do not have the integrity to tell people the truth or to seek solutions that require changes affecting all workers and beneficiaries. Rather, they mislead and seek fixes that only raise taxes on a few.
In 1973, the Social Security Board of Trustees began to project financial problems for the system in both the near and long term. The financing problem grew worse throughout the mid-seventies.
The near-term problem was caused primarily by adverse economic conditions. Much higher-than-expected inflation caused benefit levels to soar, and aggregate expenditures to do likewise, while lower growth in real wages and higher unemployment caused revenues to grow more slowly.
The long-term problem was caused in part by less favorable demographic trends. For example, based on new population data, the long-term fertility rate assumption was lowered. This reduced the projected number of workers who would contribute to the system in the next century. However, the largest part of the looming deficit (it was estimated in 1977 that costs would outstrip revenues by 75% over the next 75 years) was caused by changes in the underlying assumptions about future economic conditions. Under the 1972 law, future benefit levels were highly dependent upon the future relationship of wage and price growth. As a result, future benefits could be lower or higher than intended, and the prevailing view in the mid-1970s was that they would be much higher than anticipated. In fact, it was projected that if the benefit computation rules were left unchanged, benefits for many individuals retiring in the future would exceed their earnings before retirement.
The 1977 amendments were enacted primarily to alleviate these financing problems. The amendments increased future revenues by raising tax rates and the earnings base, but more significantly, they changed the benefit formula that was raising initial benefits too rapidly. For individuals becoming eligible after 1978, benefits were to be determined by a formula designed to give a stable relationship between one’s benefit and preretirement career earnings. This would be accomplished by indexing both the formula for determining initial benefits and a person’s earnings to reflect changing wage levels. The change in the computation rules was called “decoupling.” These actions improved the forecasts of the financial condition of the program significantly. At the time of enactment, the Social Security actuaries projected that the OASDI trust funds would be solvent for the next 50 years, although by a small margin in the late 1970s and early 1980s.
Categories: Social Security