Social Security

Social Security forms the foundation for the nation's retirement income system and, in doing so, provides benefits that are critical to the well-being of millions of Americans. A wide array of proposals have been put forth to restore the program's solvency. This testimony provides an analytical framework for evaluating these proposals. The Comptroller General discusses the (1) purpose of the Social Security system, (2) basic criteria for assessing reform proposals, and (3) importance of establishing the proper benchmarks against which reforms must be measured. The Comptroller General does not advocate for or against specific reform proposals or elements. Rather, his remarks are intended to help clarify the debate over various proposals as Congress continues to deliberate this important issue. In choosing among proposals, policymakers need to consider three basic criteria: to what extent a proposal achieves sustainable solvency and how it would affect the economy and the federal budget; the balance struck between the twin goals of individual equity (rates of return on individual contributions) and income adequacy (level and certainty of benefits); and how readily these changes could be implemented, administered, and explained to the public. Although the many reform proposals offer a wide range of options, all of them would restore long-term solvency through some combination of benefit cuts, revenue increases, or higher returns from invested contributions. Making Social Security a sustainable program involves difficult choices. At the same time, the strong U.S. economy offers an historic opportunity to deal with this problem. GAO believes that is it possible to craft a comprehensive package of reforms that will protect the benefits of current retirees while striking the right balance of equity and adequacy for future beneficiaries. Regardless of which reform proposal is adopted, better public education and information will be needed so that Americans can adjust their retirement planning accordingly.

GAO noted that: (1) as attention has focused on social security's future financial situation, a wide array of proposals have been put forth; (2) some proposals would reduce benefits, some would raise revenues, and most propose some combination to restore financial solvency; (3) social security has long served as the foundation of the nation's retirement income system; (4) Congress has always taken the actions necessary to ensure social security's future solvency when faced with an immediate solvency crisis; (5) the program does not face an immediate crisis, rather, it faces a long-range and more fundamental financing problem due to demographic trends; (6) social security's financial condition is directly affected by the relative size of the populations of covered workers and beneficiaries; (7) while the program was put into a 75-year actuarial balance just 15 years ago, trust fund balances now are projected to be exhausted in 2032; (8) in addition, the program will begin to experience a negative cash flow in 2013, which will accelerate over time; (9) a variety of proposals have been offered to address social security's financial problems; (10) the proposals differ with regard to specific benefit changes and how investment returns are captured; (11) three primary criteria can be used to evaluate these proposals: (a) the extent to which the proposals achieve sustainable solvency and their effect on the economy and the federal budget; (b) the balance they strike between the twin goals of individual equity and income adequacy; and (c) how readily changes could be implemented, administered, and explained to the public; and (12) GAO believes it is possible to craft a solution that will protect social security benefits for the nation's current retirees, while ensuring that the system will be there for future generations.