Generational Equity and Social Security Financing Reform

Abstract

Social Security has faced projected financing shortfalls since the early 1990s, and the trust funds are expected to be depleted in the next 12–17 years. Reform is becoming increasingly urgent. Many reform proposals would reduce growth in future benefits and raise payroll taxes in rough equivalence in the long term, although revenue effects tend to be much larger in the short term than the benefit adjustments. To a considerable extent, this result arises because most proposals would largely exempt current retirees and those near retirement. The result would be exacerbated by reform proposals that would enhance benefits for workers with low lifetime earnings. The author’s analysis explores the generational equity of potential Social Security reforms and argues for inclusion of all generations in bringing the system’s financing back into balance as soon as possible.