Social Security Reform: Strategies for Progressive Benefit Adjustments. Issue Brief No. 5

摘要

This is the fifth in a series of Treasury issue briefs on topics related to Social Security reform. The fundamental reason Social Security must be reformed is that scheduled benefits under current law exceed the future revenues that the system is projected to take in. Specifically, scheduled benefits have a present value that is $13.6 trillion greater than the present value of the revenues that the system is projected to receive. Relative to scheduled benefits and taxes, therefore, the present value of benefits less taxes must be reduced by $13.6 trillion. This can be done by increasing revenues relative to what is provided for under current law and/or by lowering benefits relative to what are currently scheduled but not fully payable under current law. This brief discusses the possible role that progressive reductions in scheduled benefits would play in Social Security reform. A progressive reduction in scheduled benefits would have high earners bear a relatively larger share of the burden of the adjustments needed to make Social Security permanently solvent, while workers with low earnings would be relatively shielded from the impact of benefit reductions. Under such a change, the reduction in scheduled benefits expressed as a share of wages while working would be higher for high-wage workers than it is for low-wage workers. While there is considerable disagreement about the precise nature and timing of the reforms that will ultimately make Social Security solvent, there is broad agreement that progressive benefit adjustments will be a key component of those reforms. Indeed, most proposed reforms to move Social Security toward permanent solvency call for benefit changes of this type.