Within the next few years, Barack Obama is likely to fulfill his pledge to try to revamp Social Security despite the political pitfalls involved, financial experts said. That most likely means a package of tax increases and benefit reductions that would fall most heavily on upper-income wage earners.
The Obama administration will attempt the first significant changes since the early 1980s because Mr. Obama needs to make substantial cuts in the federal deficit to assure financial markets spooked by the recession and the credit crisis.
In addition to tax increases and benefit reductions, Mr. Obama likely will push for an increase in the mandatory retirement age.
The long-term budget issues are so significant that they leave no slack in the budget to do anything, said Eugene Steuerle, vice president of the non-partisan Peter G. Peterson Foundation, Washington. If Obama really wants the economic recovery to work, financial markets react better by seeing a budget in balance.
Mr. Obama is likely to tackle Social Security by the fourth year of his administration, said Mr. Steuerle, a deputy assistant Treasury secretary under President Ronald Reagan. The president-elect could wait until more urgent issues of the economic recovery and the financial bailout are addressed, or he could package some of the proposals together.
The new administration's efforts will preserve the guaranteed benefits and social insurance structure, a departure from the failed attempt by President George W. Bush after the 2004 election to carve private accounts out of Social Security, experts said.
Mr. Bushs efforts kindled a firestorm among Social Security beneficiaries who feared losing the retirement benefits on which they had been counting.
Obama should learn from Bushs experience that all ideas should be on the table and basic principles should be followed, said David Madland, director of the American Worker Project at the liberal-leaning think tank Center for American Progress, Washington.
Social Security benefits will exceed payroll tax revenue starting in 2017, although the systems trust fund can cover scheduled benefits until about 2041. The U.S. would have to set aside $4.3 trillion today to cover the deficit expected to accumulate in the next 75 years.