Would you like to hear a super-easy, super-quick way to make a deal on Social Security? Probably not. But I have one for you anyway. Here it is:
- Chained CPI. Every year, Social Security benefits are increased to account for inflation. Many experts—and not just conservative experts—think conventional measures of CPI overstate actual inflation and suggest we should change to something called "chained CPI." This would have the effect of very slowly reducing the growth of benefits over time.
- Payroll tax cap. In 1977, Congress set the maximum income subject to payroll tax so that 90 percent of all income would be taxed. Since then, however, growing income inequality has pushed more and more income to top earners. Because of this, the payroll tax cap only captures 86 percent of all income today. We should return to Congress's original intent and phase in an increase in the payroll cap so that we once again tax 90 percent of all income.
One of these options cuts benefits slightly and the other increases taxes slightly over the course of a decade or two. Their effect is nearly identical, a 1:1 balance of benefits and taxes, and together they'd extend the solvency of Social Security by another 20 years. That takes us out to about 2060 or so, and that's plenty. In 2032 we can all get back together, see how things are going, and decide if we need to do anything further.
Neither one of these options represents a real change to Social Security. Rather, they represent an effort to return Social Security to where Congress intended when it originally set tax and COLA policies in the 1970s. We could, literally, do this deal tomorrow if there were even the slightest seriousness in Washington about addressing Social Security in a reasonable way.
We don't need to "fix" Social Security forever. After all, no one ever suggests that, say, a new quadrennial plan from the Pentagon will "fix" our defense strategy forever. We should think about Social Security similarly, as something to be revisited every couple of decades, the same way the Pentagon takes a fresh look at global challenges every few years. That's the way policymaking works.
UPDATE: Adopting chained CPI would lower benefits slightly each year after retirement, and those cuts would accumulate. Thus, the very oldest and most vulnerable seniors would suffer the biggest cuts. Christian Weller suggests that we make up for this by increasing benefits by 5 percent for those over the age of 85. That sounds like a good idea to me. Alternately, since it's the poorest seniors who would be most affected by chained CPI, we could change the bend points so that wealthier seniors get lower benefits and poorer ones get higher benefits.
I guess this would mean that this is no longer the world's easiest plan to rescue Social Security, but it's still pretty easy.