Letter to Joint Select Committee on Deficit Reduction

Letter

Today, U.S. Senator Kay Bailey Hutchison (R-TX) sent a letter to the members of the Joint Select Committee on Deficit Reduction, urging them to address entitlement reform in their negotiations and their recommendation to Congress. Senator Hutchison has been a leading Senate advocate for entitlement reform, and her Defend and Save Social Security Act (S. 1213) would ensure long term solvency of the program without raising taxes or cutting core benefits.

Below is the text of Sen. Hutchison's letter:

Dear Joint Select Committee on Deficit Reduction:

Entitlement reform is an essential component of achieving long-term fiscal stability. Modest changes implemented incrementally in the near-term will not only make a significant contribution to controlling federal deficits in coming years, they will protect tens of millions of Americans against the threat of severe reductions in future benefits.

Among entitlement programs, Social Security seems to be the best candidate for decisive action now. Long-range demographic trends are creating a widening gap between payroll tax revenues and benefits. This gap will eventually exhaust the Trust Fund's reserves. When that occurs, any shortfalls in Trust Fund revenues needed to pay benefits would trigger an immediate, proportionate cut in benefit levels. According to the most recent actuarial calculations, this will occur in 2036, with an immediate 23 percent cut in benefits and larger reductions in succeeding years.

My Social Security reform legislation, The Defend and Save Social Security Act (S. 1213), relies on two adjustments to assure that the Trust Fund can pay benefits for the next 50-75 years, without reducing benefits, raising taxes, or necessitating massive federal borrowing.

The enclosed tables describe how the adjustments set forth in my legislation would work. First, the normal retirement age for Social Security would be raised from 67 to 69, by adding three months per year to the normal retirement age threshold for those who are 57 years old and younger (i.e., those 58 and older would not be affected).

S.1213 would also raise the early retirement age from 62 to 64, in the same three-month annual increments for those who are 57 years old or younger. These changes in the normal and early retirement ages would close about one-third of the future funding gap in the Trust Fund.

In addition, my legislation also proposes a modest change in the annual cost-of-living adjustment (COLA) - a 1 percent reduction in the annual cost-of-living increase (if it exceeds 1% in a given year). This adjustment and the altered eligibility ages described above would keep the Trust Fund balanced for at least the next 75 years. The reforms would also contribute more than $400 billion to deficit reduction over the next decade and $7.2 trillion by 2085.

The reform components set forth in my bill are not untouchable. For instance, another option is to decrease the annual COLA by only 0.5 percentage points, which would extend the trust fund by approximately seven (7) years, and if combined with an increase in the retirement ages, could extend the life of the trust fund for 20 to 25 years.

Other, similar options (i.e., no payroll tax hikes, no deep cuts in core benefits) have been proposed. For instance, one widely discussed alternative is switching the current COLA calculation formula to the "chained" Consumer Price Index, which would reduce annual COLAs by approximately 0.3 percent. The Moment of Truth Project reported that this change would save $112 billion over 10 years.

What is not debatable is the demographic changes that are pulling Social Security steadily closer to the financial edge: the extraordinarily large cohort of Baby Boomers that is beginning to reach retirement age, average life expectancy that is nearing 80 years, decades of declining birth rates that limit the size of the current and future workforce that will contribute payroll taxes into the system.

By taking moderate, gradual measures now to shore up Social Security, we can avert painful disruptions for beneficiaries in coming years - to which the only alternatives would be large tax increases or trillions of dollars of additional federal borrowing. The legislative action that created the Select Committee creates an opportunity to fix Social Security in a responsible and bipartisan manner that will keep the program for future generations, while helping to address the overarching goal of putting our fiscal house back in order.

Sincerely,

Kay Bailey Hutchison

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