Social Security will celebrate its 88th birthday later this year. The federal program remains similar in most respects to how it functioned when it started.
Sure, there have been some changes along the way. For example, the full retirement age was increased from 65 to 67. Cost-of-living adjustments (COLAs) used to require congressional action; now they're automatically applied each year. But the Social Security program of 2023 still looks basically as it did back in 1935.
That perhaps won't be the case indefinitely. A top Republican wants to make the most dramatic change to Social Security ever.
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"Modest reforms"
Former Vice President Mike Pence spoke to the National Association of Wholesaler-Distributors Executive Summit in Washington, D.C., last week. During his talk, he addressed the financial issues that federal entitlement programs, including Social Security, present for the U.S. government.
Pence told the audience that a conversation was needed on what to do with the entitlement programs going forward. He stated, "There are modest reforms in entitlements that can be done without disadvantaging anybody at the point of the need."
The former vice president didn't elaborate on what those modest reforms might be. However, he did identify one for Social Security that has been proposed in the past.
Pence suggested that the federal government "give younger Americans the ability to take a portion of their Social Security withholdings and put that into a private savings account." He mentioned that he was on board with former President George W. Bush's Social Security reform efforts in 2005, which included this idea.
Many would challenge Pence's description of allowing part of Social Security contributions to go into private savings accounts as being a "modest" reform. The proposal would, without question, be the most significant change to Social Security in its history.
How would this plan work?
Pence didn't provide many details on his plan to reform Social Security. He said that a foundation he created, Advancing American Freedom, would be working to move some of the entitlement reform ideas forward. However, his comments revealed some aspects of his Social Security plan.
For one thing, Pence doesn't appear to want to impact current retirees who receive Social Security benefits. He said, "For everyone who has hair the same color as me, nothing is going to change for you." The former vice president emphasized that his plan was targeted toward younger Americans.
He maintained that allowing individuals to put part of their Social Security contributions into private savings accounts would enable them to receive greater benefits and would cost the federal government less money. Pence said that a private savings account that generated only 2% annually would give the average American twice the level of Social Security retirement benefits that they would receive under the current program.
Such private savings accounts would also be regulated, but Pence didn't say exactly how. He only noted that the accounts would be overseen by the government. Probably the biggest unanswered question with Pence's plan is how Social Security can avoid insolvency with some of the contributions no longer going to fund the program.
Slim chance
There's a lot of speculation that Pence is preparing to run for the GOP presidential nomination. If so, his Social Security plan could be a key part of his presidential campaign. But regardless of Pence's prospects to win the nomination, the chances that partial privatization of Social Security will actually happen appear to be slim.
Former President George W. Bush's similar effort was unsuccessful nearly two decades ago. It faced significant opposition from Democrats. A partial privatization plan would probably attract just as much opposition today.
Dramatic changes will likely be required for Social Security to avoid the program becoming insolvent. But there are other changes that Washington is more likely to make -- including increasing the payroll tax cap and gradually raising the full retirement age.
