Have Social Security Benefits Really Been Cut by 19 Percent?

Have Social Security Benefits Really Been Cut by 19 Percent?

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 he National Academy of Social Insurance, of which I’m a member, has released a new issue brief titled “Social Security Beneficiaries Face 19% Cut; New Revenue Can Restore Balance.” The paper argues that, based on changes implemented in the 1983 Social Security reforms—increases in the normal retirement age from 65 to 67; a one-time reduction in COLA payments; and the taxation of retirement benefits—future retirees will receive benefits 19 percent lower than what they would have received had the 1983 reforms not been implemented. Consequently, NASI argues, well, new revenues can restore balance.

Some perspective is needed. First, the 1983 reforms didn’t only reduce benefits; they also increased taxes, by covering newly hired federal workers and non-profit associations, accelerating tax increases already on the books, prohibiting state/local workers from leaving the system, and so on. Together, tax increases made up around 38 percent of the total changes in the 1983 reforms, and that’s even if you count the taxation of benefits as a benefit cut rather than a tax. How to categorize the taxation of benefits is ambiguous and I can go either way, although I’d note that benefit taxation tends not to affect low- and middle-income retirees very much. (This might be the first time I’ve seen NASI opposed to taxes on high earners.) Overall, the 1983 reforms were more balanced than you might guess from reading NASI’s paper alone.