Social Security’s growing unfunded liability cannot be solved by merely by increasing taxes, according to a study released Monday by the Heritage Foundation.
Its author, economist Rachel Greszler, argues that Social Security’s fiscal problems a result of the program having strayed from its original purpose.
According to the program’s 2014 annual report, unfunded liabilities for the Social Security and Disability Insurance programs increased by $1.1 trillion last year, to $13.4 trillion. At the current rate, the Social Security Trust Fund will run dry in 2034, at which point benefits would need to be cut by 23 percent in order to keep the program solvent. (RELATED: Sorry College Grads, You’ll Probably Never Get Your Social Security Money)
Greszler claims, “Social Security has shifted from a program to protect the elderly from poverty to a potential decades-long income subsidy.” She suggests three reforms that she believes could restore the program to solvency.
Her first recommendation is to link the cost-of-living adjustment (COLA) to the chained Consumer Price Index. Currently, she says, the COLA “is based on an outdated measure of changes in the cost of living that fails to account for how people react to changes in prices.” (RELATED: To Protect Future Generations, Fix Social Security)
Doing so, she argues, “acknowledges that people choose less expensive and different goods and services in response to changes in prices.” In this way, Social Security could reduce expenses without reducing the value of benefits.
Greszler also calls for increasing the retirement age to reflect the increasing longevity of the population. “Since Social Security’s inception,” she said. “Life expectancy at birth in the United States has increased by more than 20 years,” but the full retirement age has only gone up by two years, and the early retirement age has not increased at all.
Not only does this increase Social Security’s financial liabilities, it also “means a smaller workforce, lower economic growth, less retirement security, and lower revenue.” Greszler advocates “gradually and predictably” increasing the retirement age, then indexing it to future increases in life expectancy.
Greszler’s final suggestion is that Social Security benefits should be focused on those who need them the most.
Currently, she claims that Social Security “pays benefits to more than 47,000 millionaires and leaves many low-income recipients in need of additional welfare benefits.” In order to restore the program to its original purpose, she calls on lawmakers to “phase out benefits for retirees with high levels of non–Social Security income and provide a true system of social insurance that focuses on seniors who need it most.”
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