Five modest reforms in Social Security could save hundreds of billions of dollars and delay the inevitable day of financial reckoning for the federal government’s largest and oldest benefit program, according to a new analysis published by the Economic Policy Innovation Center (EPIC).

“Social Security Old Age and Survivors Insurance Trust Fund (OASI) will run out of funds to pay full benefits in 2032 or 2033. Because the program cannot spend more than it has on hand, benefits would automatically be reduced by about 23 to 28 percent without congressional action,” EPIC Visiting Fellow Rachel Grezler explains in the new analysis.

But Social Security provides benefits worth almost $1.6 trillion each month to 72 million older Americans, and enacting major funding and benefit reforms required to keep the OASI program solvent have long been feared as the “Third Rail of American Politics” that virtually no politician in either political party will touch. But that’s not an immovable obstacle to taking meaningful actions, according to Grezler.

“Policymakers could take several smaller, targeted steps that move Social Security closer to its original intent and modestly extend solvency. While comprehensive reform will ultimately be necessary to protect and improve the program, taking immediate actions now would prolong Social Security’s solvency, reduce unfunded obligations, and protect lower-income retirees while policymakers work toward long-term solutions,” Grezler claims.

With the national debt approaching $40 trillion and the real prospect that the federal government will, in a few short years, face unprecedented obstacles to continued borrowing to fund habitual annual budget deficits, the modest reforms recommended by Grezler could buy policymakers valuable time, she contends. The five short-term reforms she recommends include:

• Cap Benefits for High-Income Beneficiaries: Under its current funding and payment formulas, individuals with lower lifetime incomes — and thus lower contributions into Social Security — receive comparatively far more benefits than do high-income individuals. Because they contributed more via Social Security taxes during their working years, high-income earners receive bigger monthly checks but proportionately less compared to lower-income beneficiaries.

“Placing a cap on Social Security benefits beginning in 2027 and equal to the 2026 maximum levels would modestly reduce future Social Security benefits for the highest income earners. Initially, this proposal would affect only the top 2.5 percent of Social Security recipients, with that figure rising to close to 9.0 percent by 2036, as more people would hit the cap,” Grezler contends.

“A cap makes sense within the context of Social Security’s goal to reduce poverty in old age because only people who had very high average lifetime earnings would initially hit the cap, and they would still receive a benefit equal to about three times the poverty level for a single person,” she adds. Doing so could save as much as $220 billion over 10 years and extend solvency by 1.5 months.

• Apply a Progressive Cost-of-Living-Adjustment (COLA): Annual Social Security COLAs have averaged providing monthly benefit increases of 2.6% in recent years. Limiting middle-earnings-to-income beneficiaries to half COLAs and no COLAs to higher-income-to-earnings beneficiaries would save an estimated $200 billion over a decade and extend solvency by 1.5 months.

• Use an Accurate Inflation Adjustor: Under the current formula for benefit calculation, Social Security relies upon what Grezler describes as “an outdated and inaccurate inflation metric — the Consumer Price Index for Wage and Clerical Workers, or CPI-W, that is based on prices paid by less than one-third of the population, and which tends to overstate actual inflation.”

Moving from the CPI-W to what is referred to by government economists as the Consumer Price Index for All Urban Consumers, or (CPI-U), could save more than $200 billion over a decade and extend solvency by two months. This is because the CPI-U covers more than 90% of the population and provides a significantly more accurate measure of how consumer spending varies as inflation waxes and wanes.

• Begin Progressive Price Indexing for Newly Eligible Retirees: A wage-indexing formula mandated by Congress during the Carter presidency overstates earnings. The significance of that 1977 decision is that had Congress instead mandated use of a more accurate progressive price index in the benefit formula, Social Security would be solvent today, according to Grezler. This reform could save up to $200 billion and extend solvency by a full month.
  
  
• Extend the Current Increase in Social Security’s Retirement Age: Gretzler explains that “in 1983, Congress enacted changes to increase Social Security’s normal retirement age gradually from 65 to 67. Since 2000, the age has been increasing by two months for each year of birth until it reaches 67 for individuals born in 1960 and later. Extending the current increase by adding two months per year to Social Security’s normal retirement age — bringing it to 67 years and 2 months for individuals born in 1961 and up to 70 for individuals born in 1981 and beyond — would align with Social Security’s intent to protect against individuals outliving their savings.” This reform would also enable “current workers to prepare to either work slightly longer or to save slightly more for their retirement.” Savings would reach $100 billion over a decade, and solvency would receive another one-month extension.

Enactment of these five reforms would result in total savings over 10 years of an estimated $920 billion and provide the Social Security system with a much-needed additional seven months of breathing room before either huge benefit reductions or major systemic reforms can no longer be kicked down the road.

The EPIC is a Washington, D.C.-based conservative, free-market nonprofit research group. Among its top staffers is William Beach, the former Senate Budget Committee chief economist and former director of the Bureau of Labor Statistics (BLS) in the Department of Labor during the first term of President Donald Trump.