Social Security Policy

Why is Social Security on the agenda for the first time in fifteen years? Why are policy makers considering modifying or replacing the program? Social Security was once such a regular item on the governmental agenda that no detailed explanation was really required. Between 1935 and 1973 Congress and the President enacted twenty-five Social Security laws – more than one bill every two years – as they transformed a relatively small retirement program, with initial tax rates of one percent each on employees and employers, into the mature program we know today, with tax rates of 6.2 percent. During the final six years of this period, Social Security was constantly on the agenda, as Congress and the President responded to unusually high inflation by raising benefits seven times. Finally, in 1972, they placed Social Security on automatic pilot by enacting a provision that each year adjusts the wage base for changes in average wages and retirement benefits for changes in the consumer price index.

The 1972 law essentially removed Social Security from the regular governmental agenda. The program had reached maturity, and particularly as the economy stalled, there were no further pressures to expand it. Although insulated from inflation, Social Security was still vulnerable to other economic shocks and to long-term demographic changes. Social Security has returned to the governmental agenda only twice since 1972, each time because of actuarial imbalances. It first returned in 1975, after actuaries calculated that the program was facing a deficit within three years. The sources of the problem were two: some mistakes in drafting the original adjustment formula, which overcompensated for inflation, and economic stagnation which reduced revenues below their projections. After two years of debate, Congress and the President enacted a 1977 bill that phased in tax increases and recalibrated the inflation adjustment.

(Douglas, A.R.., (1998)).