The Leaflet: The Future of Social Security

Published January 7, 2016

According to a 2015 survey released by AARP, formerly the American Association of Retired Persons, a majority of adults in the United States are weary of the future of Social Security, with 57 percent of people suggesting they are not confident in the future of the entitlement program.

Social Security, including its chief program, the Old-Age and Survivors Insurance program (OASI), is currently the largest single program in the federal government, occupying more than 20 percent of all federal spending. Some argue that it could be considered the largest government program in the world, as it provided $851 billion in benefits to 58 million recipients in 2015. The program is facing substantial financial problems and, without drastic changes, it is not sustainable over the long term.

In the United States, nearly one-third of retirees receive nearly all of their retirement income from the Social Security system. However, Social Security benefits are not exclusive to retirees. The Social Security Disability Insurance Trust Fund provides benefits to disabled workers, their spouses, and children. In a 2015 Forbes article, Jamie Hopkins, an associate director of the American College’s New York Life Center for Retirement Income and an associate professor of taxation at the American College, warned of the disability portion of Social Security running dry.

“While the OASI Trust Fund, the portion of Social Security that most people think of as their retirement benefits, is not set to run out of money in the trust until 2033, the Disability Insurance Trust will run out in 2016 if nothing is changed,” wrote Hopkins. “This shortfall would result in a nearly 20% cut to benefits, reducing those $1,000 checks down to $800 a month.”

Peter Ferrara, senior fellow for entitlement reform and budget policy at The Heartland Institute, published an article for National Affairs in 2015 arguing Social Security is currently in a state of crisis due to congressional inaction. Ferrara asserts if Congress waits until 2029 or 2033 to fix Social Security, policymakers will be left with very few options and will likely be forced to raise payroll taxes to unprecedented and harmful levels.

Romina Boccia, a research fellow in federal budgetary affairs for The Heritage Foundation and the deputy director of the Roe Institute for Economic Policy Studies, urged lawmakers to take action in a recent article, stating, “Lawmakers should immediately replace the current cost-of-living adjustment with the more accurate chained consumer price index; raise the early and full retirement ages gradually and predictably; phase in a flat benefit; focus Social Security benefits on those who need them most; and enable more Americans to save their money in private retirement accounts.” Personalized investment accounts are the answer. Those accounts would survive financial crises and the transition could be made without harm to current retirees and those near retirement.

What We’re Working On

Budget & Tax
Research & Commentary: Virginia Pension Reform
Virginia House Speaker William J. Howell (R- Stafford) recently announced his plan to create a new commission to study the possibility of shifting the state’s pension system from a traditional defined-benefit pension model to a 401k-style defined-contribution model. The Virginia Retirement System is the 22nd largest public or private pension fund in the United States and 49th largest in the world, with 660,000 members, retirees, and beneficiaries.

In this Research & Commentary, Heartland Senior Policy Analyst Matthew Glans argues all newly hired public-sector workers should be moved to defined-contribution pension plans and current workers should be given the option of transferring into a defined-contribution plan. Moving Virginia’s pension system to a defined-contribution model puts the state on a path towards lowering costs and improving flexibility. Defined-contribution plans benefit taxpayers because the burden of the pension plan does not rise automatically due to cost of living adjustments, and defined-contribution plans are more transparent, avoiding the accounting gimmicks governments currently use to hide liabilities. Read more

Constitutional Reform
Heartland Daily Podcast: The Push for an Article V Convention
In this edition of The Heartland Daily Podcast, Kyle Maichle, project manager for the Center for Constitutional Reform at The Heartland Institute, joins host Donald Kendal to discuss constitutional reform efforts underway at Heartland, as well as the status of the various movements that are ongoing in the United States. Maichle talks about the three major organizations that are pushing for an Article V convention of the states, all of which are described in “The Article V Movement: A Comprehensive Assessment to Date and Suggested Approach for State Legislators and Advocacy Groups Moving Forward,” a recently released Heartland Policy Brief. Maichle also addresses the threat of a runaway convention that many critics cite as the primary reason for why an Article V convention should not occur. Read more

Research & Commentary: Illinois PARCC Testing Results
The inaugural Partnership for Assessment of Readiness for College and Careers testing scores for the State of Illinois were made available in mid-December, and the results were discouraging. In Illinois, only 33 percent of students met or exceeded expectations on the assessment on both the math and reading portions of the exam in 2015 – right in line with Illinois’ latest scores on the biennial, congressionally mandated National Assessment of Educational Progress (NAEP) tests. Only 35 percent of 4th and 8th graders tested “proficient” in reading on the 2015 NAEP test, and only 37 percent of 4th graders and 32 percent of 8th graders tested proficient in math. Heartland Institute Policy Analyst Tim Benson says Illinois’ woeful performance on these and other tests underscores the desperate need for the state to expand school choice opportunities far beyond what is currently available. Read more

Energy & Environment
Research & Commentary COP21 and the Paris Climate Agreement
The Paris climate agreement, adopted on December 12 by 195 nations attending the United Nations’ 21st Conference of the Parties, was called a “turning point for the world” by President Barack Obama and “the best chance to save the one planet that we’ve got.” The agreement commits, for lack of a better word, the signatory countries to limiting the rise of global temperature to “well below” 2.0° Celsius (C) above pre-industrial levels, while pursuing efforts to keep the temperature increase to just 1.5° C above pre-industrial levels. More than 180 of the signatories pledged to create and deliver plans every five years they say will progressively reduce their carbon dioxide emissions using the “highest possible ambition.” The agreement also creates a $100 billion Green Climate Fund (GCF), where developed countries in the West “shall provide financial resources to assist developing country Parties with respect to both mitigation and adaption” each year. Heartland Institute Policy Analyst Tim Benson notes the agreement is essentially just an aspirational document. Benson argues the language of the agreement was crafted to avoid phrasing that could be considered legally binding. Instead of signing onto climate agreements that promote even more taxes, regulations, and subsidies aimed at reducing carbon dioxide emissions, Benson says elected officials should support sound environmental stewardship that is pro-energy, pro-environment, and pro-jobs. Read more

Health Care
Research & Commentary: North Carolina Retiree Health Care Reform
The Charlotte Observer recently reported the North Carolina General Assembly will soon be considering legislation that aims to address the $25.5 billion unfunded liability in the state’s retiree health system. North Carolina officials project the 30-year unfunded liability could grow to $37.5 billion by 2020, unless reforms are implemented. North Carolina’s Joint Legislative Program Evaluation Oversight Committee is scheduled to review legislative language for public retiree health care reform based on a 2015 report. 

In this Research & Commentary, Senior Policy Analyst Matthew Glans discusses the possible reform proposals and suggests one model the state could use. Glans recommends using Indiana’s health savings account (HSA) program for public workers as model for North Carolina to follow. Today, more than 50 percent of state government employees in Indiana have health savings accounts, the nation’s highest state employee participation rate in HSAs. Read more

From Our Free-Market Friends
Civitas Institute’s 2016 Conservative Leadership Conference
The 2016 Conservative Leadership Conference (CLC) is fast approaching, and this year promises to be one of the most highly attended events in Civitas’ history. The conference will feature Allen West, an American political commentator and former member of the U.S. House of Representatives, and Ann McElhinney, director and producer of the documentary FrackNation. The CLC will take place on March 4–5 in Raleigh, North Carolina at the Marriott Crabtree Valley Hotel. With another lineup of fantastic speakers and experts at the conference, tickets are going fast. Register here