Framing the Future Social Security Debate

By Larry DeWitt, Historian, U.S. Social Security Administration
October 2007

Having recently completed work on a documentary history of the Social Security program¹, several insights suggest themselves which might be useful in framing the (inevitable) future debates over Social Security policy.

The first and most salient realization is that to a remarkable degree the policy debates in Social Security seem to contain some hardy perennials.

For example, the Social Security trust funds and their ambiguous role as sources of program assets were contentiously debated virtually from the moment the ink dried on the Social Security Act of 1935. Many of the same shibboleths heard today (that the trust funds are "worthless IOUs" or that the assets in the funds have been misspent for other purposes) have been voiced for decades. Indeed, the landmark 1939 amendments emerged from an advisory council appointed at the insistence of Congressional Republicans who wanted to find ways to scale back the size of the expected trust fund build-up. At the same time, the Roosevelt Administration wanted to expand the social insurance system beyond the bare-bones retirement program created in the 1935 law, and the essence of the 1939 changes was that a political compromise was struck giving each side some of what they wanted.

Earlier generations of workers were also certain they would never see a dime of their promised benefits, just as today's young workers assume this will happen to them. In fact, the program has thus far paid out over $9 trillion in benefits to over 200 million individuals, making these recurrent lamentations seem especially ahistorical.

Another prominent and recurring debate has been over tax rates and what portion of the program's costs should come from current taxation or be deferred to future generations of taxpayers. This expresses itself in the pattern of trust fund build-ups and declines—in the degree to which the program is operated on a "pay-as-you-go" basis or uses the mechanism of the trust funds as a device for partially pre-funding future costs. In point of fact, the financing of the system has never been purely one or the other, but it has migrated toward one or the other end of this spectrum with each major set of legislative changes. But a fundamental policy choice presents itself in this regard, and it is destined to be debated over and over, as the proper balance here is a matter for periodic political recalibration.

There are other parts of Social Security's story that are not recurring themes but are more like what Paul Pierson and other political scientists describe as "path dependencies." For example, during the early decades of the program's history, the emphasis was on program and policy expansion and the debates were usually over if or when particular occupational groups should be brought under the program's coverage, or whether certain types of benefits should be added or made more generous. Once the program achieved its mature form in the mid-1970s, the debates shifted to issues of cost containment and policy restraint. We can usefully describe the history of the Social Security program as being composed of two broad periods: the era from 1935 through 1972, which was the Expansionary phase of the program; and the period since 1972, which has been by and large a period of Retrenchment.

The present debate about the future of Social Security is essentially one about financing, rather than a debate about coverage or benefits. This too is not new. Indeed, the current financing debate is the fourth in the program's history—following similar debates in 1939, 1977 and 1983, each of which resulted in major legislative changes.

Those earlier episodes may contain cautionary insights for policymakers. Both of the major episodes of program scale-backs (in 1977 and 1983) occurred in the context of short-term financing crises. The present debate is over long-range financing, which may explain why there has been no major Social Security financing legislation since the amendments of 1983.

Another unique aspect of Social Security policymaking has been the role of periodic outside advisory councils in helping craft policy changes. Starting in 1934, administrations and/or the Congress from time to time created various advisory councils and commissions to make Social Security policy recommendations.

The central political idea behind all of the successful councils was to bring together representatives of the key stakeholders (and both political parties) and let them work through the construction of a policy consensus with which they could all live—working outside the pressures of the formal political arena. Their subsequent reports then became bright-line guides for the Congress in crafting politically viable legislation. When this pattern was followed, successful legislation usually resulted. When this formula is not followed (for example in President Bush's 2001 Commission) legislative action is highly unlikely.

Finally, it is remarkable, but perhaps not too surprising, to see the degree to which the future of the Social Security system itself is a topic of public concern and political debate. In the early years of the program, the long-term political viability of the system was perhaps open to some doubt. But by the time President Eisenhower affirmed his administration's commitment to the program in 1953, one would have thought the matter had been finally settled and that dramatic change would seem unlikely.

At the start of the Eisenhower Administration the U.S. Chamber of Commerce had tried to enlist the President's support for their alternative to Social Security—a system of flat-rate (and very low) benefits paid to all seniors without regard to employment history, and with fixed (and low) flat tax rates in which everyone paid the same amount regardless of their income. The Chamber hoped through its proposal to reduce the role of government in the provision of economic security. Eisenhower rejected the idea, telling the advocates of the Chamber proposal "It would appear logical to build upon the system that has been in effect for almost twenty years." Moreover, he warned that adopting such an alternative to Social Security was "turning it completely upside down and running the very real danger that we would end up with no system at all." ² In other words, the nation had long ago made the choice to institutionalize Social Security as part of the fabric of American public policy and to change it in fundamental ways would be a profoundly un-conservative idea.

This seemed to settle the matter of fundamental change once and for all. Indeed, all presidents from FDR to George W. Bush have rhetorically reaffirmed the nation's support for the program. As Ronald Reagan put it in signing the landmark 1983 legislation: "This bill demonstrates for all time our nation's iron-clad commitment to Social Security. It assures the elderly that America will always keep the promises made in troubled times half-a-century ago. It assures those who are still working that they, too, have a pact with the future." ³ In fact, if one computes party support for the major Social Security legislation over the years (as we do in our book) one finds very similar numbers for Republicans and Democrats in Congress, both for expansions of the system and for cut-backs.

Even so, the topic of fundamental change in the nature of the Social Security system seems to have moved from the fringe into the mainstream for the first time since the Act's passage in 1935. With the report of the 1994-96 Advisory Council, the idea of partially privatizing the Social Security retirement system became a mainstream proposal (albeit a very contentious one). By the time of the 2000 presidential election we saw for the first time a candidate for one of the two major parties openly advocating partial privatization, as George W. Bush campaigned on the idea.

Upon taking office in 2001, President Bush signaled that he intended to make Social Security reform, including partial privatization, a centerpiece of his first term. To further this goal, in May 2001 he appointed a presidential commission (The President's Commission to Strengthen Social Security) to study ways to implement his preferred reform (which involved the introduction of market-based individual equity accounts in place of a portion of the Social Security benefit). Although the Commission issued a report in December 2001, the events of 9/11 had caused policy attention to shift elsewhere and the report received little notice on Capitol Hill.

After Bush's reelection in 2004, the Administration made Social Security a priority of the president's second term. Bush mentioned Social Security 18 times in his 2005 State-of-the-Union address—a modern record. An active multi-faceted campaign was launched, the most visible aspect of which was Bush's barnstorming tour of "60 stops in 60 days," where the President made speeches and sometimes held full-blown town-hall meetings. One particularly picturesque effort involved a trip to a Treasury facility in Parkersburg, West Virginia, where the President asked to "see" the Social Security trust funds. He was shown a three-ring binder with a set of computer-printed bond certificates meant to betoken the obligations to the trust funds. The expected effect was to suggest that the "trust funds" were not in fact any kind of substantial asset to the program. Despite the Administration's efforts, the campaign went nowhere in Congress and the effort was largely dropped, although the Administration has indicated they are still committed to their reform goals.

But this is a subject that is unlikely to go away. It may yet become an issue in the 2008 presidential campaign, but if not, it will certainly be an issue for the next president. It is not difficult to see why. There are two central reasons: because it's where the money is, and because it is the linchpin in our nation's system of retirement security.

As to money, the Social Security program is the largest single function in the federal government's budget (accounting for about one-quarter of all expenditures). Indeed, the annual budget of the Social Security system is larger than the gross domestic product of all but about the dozen richest nations of the world. Despite its vast size, the latest report from the Social Security actuaries indicates that the system will run short of funds sometime around the year 2041, hence the necessity for eventual action.

As to its role as economic linchpin, recall that at the time of the creation of Social Security in 1935 a majority of the elderly in America lived in economic dependency—they lacked sufficient income to be self-supporting and independent. For most older workers, before Social Security came on the scene, retirement was a distant concept rather than a practical reality. Today, a self-reliant period of retirement is an expected and assumed phase of an ordinary life well lived. Central to that experience is the presence of Social Security. Nine out of ten elderly Americans collect Social Security and for one-third of them Social Security is virtually their entire retirement income; two-thirds depend on it for the majority of their retirement income. If Social Security were not on the scene, poverty among the elderly would once again be near 1935 levels.

Given all this, periodic debate about such a significant governmental undertaking is inevitable, perhaps even desirable. And some sense of the themes and patterns that historians can see in the historical record ought to be helpful as policymakers confront what to do about the future of Social Security. But our modest ambition as historians of this program ought to be to provide a useful framing for those future policy debates. We should not necessarily aspire to the lofty role history is thought by some to play. The renowned French politician and historian of the 19^th century, François Guizot, writing in 1829, could unblushingly say: "history makes the true philosopher, the one whose knowledge is most practically useful. . . . We have the field notes of those who have gone before us . . . Thus we become gifted with second sight . . . we are seers, entitled to the appellation of wise. . ."

If historians cannot make future policymakers into seers, at least by providing some historical framing of the issues we might be able to provide them with a few additional insights as they feel their way to some greater wisdom about the future of Social Security.

¹ DeWitt, Larry W. Beland, Daniel, and Berkowitz, Edward D., (eds.) Social Security: A Documentary History (Washington, D.C., Congressional Quarterly Press, 2008).

² Berkowitz, Edward D., Mr. Social Security: The Life of Wilbur J. Cohen, (Lawrence, University Press of Kansas, 1995): 90.

³ Full text of Reagan's remarks available online via the Social Security Administration website at: http://www.ssa.gov/history/reaganstmts.html