President Biden has pledged to oppose any and all cuts to restore the critically underfunded Social Security system to solvency. This makes for good politics for Biden and congressional Democrats. But it is bad for the Americans who will depend on the nation's retirement and disability program in the future. With most Democrats opposing benefit reductions and Republicans opposing any tax increases, policymakers are at an impasse. Waiting to act until 2035, when the system's trust fund is projected to run dry, will only make the solution more painful.
Biden himself should know this – because he was directly involved with one bipartisan compromise that kept Social Security solvent for decades and another that failed to pass.
The successful compromise was reached in 1983, when Social Security was mere months away from insolvency. For two years, Republicans and Democrats had been engaged in heated rhetoric over what to do about it. The main players in this drama were a who's who of the era: They included noted economist Alan Greenspan, appointed by President Ronald Reagan to head a commission on the retirement program; House Speaker Thomas P. "Tip" O'Neill Jr. (D-Mass.); Rep. Dan Rostenkowski (D-Ill.), chairman of the House Ways and Means Committee; and Sens. Daniel Patrick Moynihan (D-N.Y.) and Bob Dole (R-Kan.), who eventually led the bipartisan compromise. They fought for their positions and then negotiated a plan that served the country's interests.
The reforms they settled on reduced benefits in three important ways. First, the "normal retirement age" at which full benefits could be received was gradually increased from 65 to 67. This provision did not restrict the age at which benefits could be claimed, but imposed an effective 13 percent benefit cut on anyone claiming benefits before the normal age. Second, the reforms made Social Security benefits subject to income taxes, a de facto means test on retirees with incomes above $25,000. And third, cost-of-living adjustments (COLAs) for retirement benefits were delayed. Together, these benefits reductions accounted for more than two-thirds of the reforms' improvement to Social Security's finances. Tax increases, which included an increase in the rate paid by self-employed workers and the more rapid implementation of a payroll tax rate increase already scheduled to take place, generated most of the rest of the improvement.
Twenty-six Senate Democrats voted to support the agreement, including Biden. In April 1983, Reagan signed it into law. And Social Security remained solvent for decades.
In 2012, the Obama-Biden administration proposed a budget for the next fiscal year that would have reduced Social Security COLAs as part of a "grand bargain" with congressional Republicans to reduce budget deficits in general. The proposal would have adopted a new measure of inflation to calculate COLAs, the "chain-weighted" consumer price index, which the Bureau of Labor Statistics considered to be an improved measure of the cost of living but would result generally in lower COLAs, including for seniors already taking their Social Security benefits. As vice president, Biden was the administration's point man in the bipartisan budget talks, which eventually broke down when Republicans backed away from tax-rate increases. But it's important for Democrats to note that the Obama-Biden administration had been ready to accept reducing Social Security benefits for current retirees as part of a compromise.
Congressional Republicans, for their part, need to banish any illusions that a bipartisan deal would not include tax increases, most likely on higher income Americans. Republicans don't have to like raising taxes any more than Democrats like reducing the growth of benefits. But accepting policies you don't like is the price of a bipartisan fix – the only possible solution to Social Security insolvency.
Social Security's financing hasn't gotten any better since 2012. In fact, the Congressional Budget Office predicted last year that over the next 75 years, the system will be underfunded by 27 percent – more than double the shortfall the agency predicted 10 years earlier. Perhaps worse, both political parties' willingness to engage on fiscal issues has only declined as past concerns over deficits and debt are being ignored.
Biden has an opportunity to be a president who – like Reagan – saves Social Security. His decades of experience on Capitol Hill, including previous efforts on Social Security reforms, are what is needed to get Democrats and Republicans in Congress to put aside their differences and make the difficult decisions needed to protect this important program for current and future retirees.
Andrew G. Biggs and James C. Capretta are senior fellows at the American Enterprise Institute.