6 Biggest Social Security Reforms in History
If you’re looking for insights into the current Social Security reform debate, a good place to start is the past. The program has been around nearly 90 years, since President Franklin Roosevelt signed the Social Security Act of 1935 during the depths of the Great Depression.
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Since then, Social Security has undergone numerous changes — most of which expanded the program.
Much of the debate in 2023 centers on how to deal with the Old-Age and Survivors Insurance (OASI) Trust Fund, which is expected to run out of money by the middle of next decade. When that happens, Social Security funding will have to rely exclusively on payroll taxes, meaning benefits could face a reduction of 20% or more.
Some lawmakers aim to deal with the problem through higher revenues. This would likely involve raising the Social Security payroll tax rate (currently 6.2% of wages paid by both employees and employers) and/or raising the cap on wages subject to Social Security wages (in 2023, any wages above $160,200 are not subject to the tax).
Others want to reduce Social Security spending. This could take a few forms, such as raising the full retirement age to 70 from 67, cutting monthly benefits across the board or changing the benefits formula so that higher-income recipients get lower payments and lower-income recipients get the same or more.
A look back in time could provide clues as to what might happen now. Social Security has had more than 14 major reforms since its inception in 1935, according to Ted Sarenski, a wealth advisor with SageView Advisory Group.
In many cases these changes focused on broadening Social Security or bolstering benefits for retirees. Here are six of the most important changes to Social Security from a larger list published by AARP:
- Adding benefits for workers’ dependents and survivors (1939)
- Adding an annual cost-of-living adjustment (COLA) to payments (1950)
- Providing benefits to disabled workers ages 50 to 64 and disabled adult children (1956)
- Allowing Americans to take early retirement at age 62 (though with lower benefits) vs. retiring at 65 (1961)
- Establishing the Supplemental Security Income (SSI) program that provides monthly cash payments to older, blind and disabled people with very low incomes and limited assets (1972)
No. 6 is perhaps the biggest reform. It took place in 1983, when a bipartisan commission was appointed by President Ronald Reagan and Congress, with Alan Greenspan as chair, to look at needed changes to the Social Security system.
Back then, much like today, Social Security faced numerous problems. Many of them were tied to high inflation and economic distress during the late 1970s and early 1980s — similar to what the U.S. has experienced over the last couple of years. In 1983 (as in 2023) the Social Security Trust Fund balance was in danger of a shortfall.
As Sarenski noted in a recent column on the Retirement Daily on the Street website, changes signed into law in 1983 included:
- Increasing the full retirement age gradually from age 65 to age 67 for those born 1960 and after
- Taxing Social Security benefits if one-half of the Social Security received plus other taxable income exceeds $25,000 for single and $32,000 for joint tax filers. Those thresholds still apply today.
- Basing the annual COLA calculations on the Consumer Price Index
- Adding all federal employees, including Congress and the White House staff, to those subject to Social Security tax withholding
- Gradually increasing the Social Security tax rate of withholding from 5.4% to 6.2% by 1990 and thereafter
At least one of those changes is not really feasible in 2023: having more federal employees pay into Social Security. As Sarenski pointed out, there are not a lot of workers today who don’t pay into the Social Security system.
However, there are other options from 1983 that could be valid today. One of them is raising the full retirement age to 69 from 67, which Sarenski said makes sense given that Americans are living longer now than they did when previous retirement ages were established.
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He also recommends raising the Social Security payroll tax again, this time from 6.2% to 7%. Along those same lines, raising the payroll tax cap to a higher amount from the current $160,200 would increase the amount of funds being paid into Social Security, and “these payments would be made by higher income people who ostensibly can afford them,” Sarenski wrote.
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