Congressional Democrats are saying that they are not willing to consider changes in Social Security in a deal to avoid the "fiscal cliff," even though the Simpson-Bowles commission charged with coming up with a plan insists that Social Security can't be ignored.
Sen. Dick Durbin (R-Ill.) argued on ABC's "This Week" on Sunday that Social Security needs only a few small tweaks and no major reforms to ensure the long-term solvency of the program.
"Social Security does not add one penny to the deficit," he said. "Not a penny. It's a separate funded operation, and we can do things that I believe we should now, smaller things, played out over the long term that gives it solvency."
Sitting opposite of Durbin on the ABC Sunday news show was Sen. Lindsey Graham (R-S.C.), who believes adjustments to Social Security should be part of any deal struck between the two parties.
"I don't think you can look at entitlement reform without adjusting the age for retirement, like Tip O'Neill and Ronald Reagan did," countered Graham. "It goes to 66, 67 here pretty soon for Social Security. Let it float up another year or so over the next 30 years, adjust Medicare from 65 to 67 over the next 30 years, means test benefits for people in our income level."
"I don't expect the Democrats to go for premium support or a voucher plan, but I do expect them to adjust these entitlement programs before they bankrupt the country and run out of money themselves."
President Obama spent the last several months of the campaign talking about the need to raise taxes on the "wealthy," defined as those whose income exceed $250,000 annually. Yet without some type of spending reform, experts on the federal budget say new monies raised from any sort of tax increase is not enough to solve the nation's looming budget crisis.
Some members of Congress are asking if this is the perfect time to reform Social Security.
Technically speaking, Durbin is correct in that Social Security is not part of the federal budget. It was intended to be a standalone trust fund where workers pay into a system so that retirees and older Americans would have something to fall back on when they are no longer working fulltime.
"Social Security is basically a pay-and-go situation," Eugene Steuerle of the nonpartisan Urban Institute think tank told CNBC. Unlike Medicare, Social Security must pay for itself, and technically, it is not part of the overall federal budget.
So where does the money come from?
Social Security receives its revenues from three primary sources. First is the mandatory payroll deduction of 6.2 percent from each worker and matched by the employer. The second source is the income tax collected from beneficiaries whose income exceeds a certain level and the third source of funds is interest earned from funds invested in U.S. Treasuries.
Initially designed as a program to assist the elderly, Social Security has gone through several changes, the most dramatic of which occurred under the presidency of Lyndon Johnson when the program was expanded to include benefits for the disabled. Since then, only minor changes have been made to the entitlement program.
The problem is, however, that there will soon be more money going out of the Social Security coffers than there is coming in.
While there is no shortage of ideas on how to reform Social Security, there is a shortage of elected representatives willing to vote for them. Candidates on either side of the aisle would in essence be committing political suicide if they ran on a platform of reducing Social Security benefits.
Some liberals such as Sen. Patty Murray (D-Wash.) have taken a hardline on cutting entitlements, saying that any discussion related to cutting entitlements such as Social Security or Medicare are "off the table."
Yet business leaders disagree. The U.S. Chamber of Commerce sent a letter to Congress signed by more than 200 businesses advocating for the extension of all the expiring tax cuts and for entitlement reform.
"Our nation's entitlement programs are unsustainable. If we do not make sensible reforms, the programs will go bankrupt – and so will the nation," reads the letter.
Please share this story with your friend!
- Fiscal Cliff Negotiations Should Protect Programs for the Poor, Religious Leaders SayAre Democrats Serious About Taxing Millionaires?Falling Off Fiscal Cliff May Be Better for Democrats Than RepublicansFiscal Cliff: 'Tax Rate Increase' or 'Revenue' May Prove Sticking PointObama, Boehner at Odds on Tax Cuts for the Rich