By 1982, politicians of both parties agreed that the near-exhaustion of the trust fund
required immediate action. Moreover, most members of Congress believed it would be wise to
shore up the program’s long-term financial prospects. With power shared by the parties across
institutions, and with Republicans eager to avoid focused blame for any painful adjustment, only
a bipartisan solution was possible. A national commission representing the leadership of both
parties and the largest business and labor associations negotiated a compromise that was, in its
essential, enacted by Congress and signed into law. The package included a great deal of short-
term pain, including the taxation of benefits for higher-income retirees starting in 1985, a one-
time six-month delay in inflation adjustment effective right away, the acceleration of the 1977
schedule of tax hikes (from 1990 to 1984 and 1988), an increase in the contribution rate paid by
the self-employed (starting in 1984), and coverage of all nonprofit and new federal workers in the
system.
These doses of short-term pain not only resolved the immediate cash crunch but also
generated a policy investment that would reduce the system’s 75-year deficit by two-thirds. As in
1977, the emergency measures that would get the system through short-term economic troubles
would soon begin producing large annual surpluses once the storm had passed and benefit outlays
fell below tax intake. These surpluses would be further fed by a phased increase in the retirement
age starting in 2000. The program’s mounting reserves, projected to reach 5 times annual outlays
and a fifth of GDP early in the next century, would then help pay benefit promises for several
decades without tax or benefit changes, even as demographic ratios worsened.
In important ways, however, decision makers backed into this dramatic intertemporal
transfer, as their distributive efforts hit the walls of institutional constraint. Had either liberals or
conservatives been able to act alone, pursuing their own constituencies’ distributive interests,
each could have devised a solution that relied solely on burden-shifting, without any recourse to
policy investment. Specifying this counterfactual is more complex in the U.S. case, as we have a
less transparent sequence of proposal and strategic adjustment than we did in Britain. Still, early
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