House Speaker Nancy Pelosi holds a press conference at the Capitol to commemorate the 75th anniversary of the Social Security Act. (Pete Marovich/ZUMApress.com)

This summer, Social Security – the government program that provides a steady check for seniors – turned 75. In Washington, lawmakers celebrated its platinum anniversary not with champagne, but with a heated argument over whether to reform the costly entitlement program by slashing benefits or raising the retirement age. Indeed, with the national debt over $13 trillion and the government running at a $1 trillion a year loss, the Obama administration created a deficit commission — the bipartisan National Commission on Fiscal Responsibility and Reform — to find ways to return the country to the black. In anticipation of its report, and in anticipation of possible changes to the program, lawmakers have started discussing how to reform Social Security.

After running a surplus for years and building up a sizable trust fund, Social Security now runs in the red. Though the program is far from bankrupt, more money is pouring out than going in. Economists project that the trust fund will be emptied by 2037. From there, opinions diverge on how far into debt the program will fall if nothing is done.

“Social Security is not in immediate trouble. There’s been a lot of exaggeration of that problem,” says Alice Rivlin, senior fellow at the Brookings Institution and a member of the deficit commission. “It is not on a solid basis for the long run, however. The sooner we act, the less we have to do.”

The problem is, there’s no consensus on what form that action should take. And many of the most commonly discussed tactics for stemming the flow of red ink would disproportionately impact lower-income Americans, the segment of the population that depends on Social Security the most.

One idea that comes up frequently is raising the retirement age. House Minority Leader John Boehner (Ohio), for instance, proposes lifting it to 70; some economists have suggested lifting it to as high as 75.

The idea sounds good: People are living longer, so it makes sense they will be working longer as well, right? But raising the retirement age will not necessarily keep people in the workforce longer, says Dean Baker, co-director of the Center for Economic Policy Research. For lower-income Americans, it would often just consign them to a retirement of lower benefit checks.

Already, around two-thirds of non-disabled workers elect to begin receiving smaller checks at 62 rather than full payments at 65. The hardship of raising the retirement age falls disproportionately on low-income workers who work in physically demanding professions, jobs they may not be able to continue through their seventh decade. According to Baker, 45 percent of workers over the age of 58 hold physically demanding jobs. Among those who lack a high-school diploma, that percentage skyrockets to around 75 percent. “If the hope is that people will work longer, that’s a very difficult thing for low and moderate income Americans to do,” Baker says.

Moreover, though the average lifespan has increased since Social Security’s creation, those extra years aren’t enjoyed equally by all Americans. Overall, Americans are living about seven years longer. But the poorest 20 percent of Americans are living just two years longer – coinciding with that increase in retirement age. Baker notes that minority Americans fare even worse. “Even at 65, there’s a gap of about two years in lifespan. Also, on average, they have much lower wealth at retirement, so they’re much more dependent on Social Security.”

Center and right-leaning policy experts say another way to limit Social Security expenditures is to change the baseline for the benefits calculator from a wage index to a price index. Since the price of goods tends to grow more slowly than wages do, this shift would reduce the amount the program would have to pay out in the future. Supporters of this proposal say that because the benefits will still increase along with price inflation, seniors won’t suffer a shortfall in real-dollar terms.

This logic works in theory. But in practice, it would seriously impact lower-income Americans. Why? Seniors spend differently than average-aged workers: They buy more healthcare goods and services. And healthcare costs are skyrocketing well above the average inflation rate, so lowering benefits would make it more difficult for retirees to cover their costs. The more economically strapped the American, the more it would hurt.

Other plans would have less impact on those least able to shoulder the burden. One idea would be to reduce benefits for wealthy retirees. The idea is that “Bill Gates doesn’t need social security,” says Brookings’ Rivlin.

The problem is deciding where to set the bar: Too low, and you ensnare middle-class families, too high, and you only earn the ire of the superrich without contributing much to the bottom line. Some experts, including Rivlin, think the political cost probably wouldn’t be worth the impact on the bottom line. Polls show that even wealthy Americans want their Social Security, and are willing to pay for it. The government might net a little more money, but it would lose the public support and buy-in of wealthy (and thereby influential) citizens.

“U.S. benefits relative to earnings are low by comparison with those in other wealthy nations,” says Henry Aaron, senior fellow at the Brookings Institution. “I don’t think there’s a strong case for cutting benefits on the merits of the idea. In my view, the bulk of the fix should come from the revenue side.”

Many economists on the left share that sentiment. “It makes sense to fix social security by increasing revenues and making sure a good chunk of those revenues come from the high end of the income distribution,” says Monique Morrissey, an economist at the Economic Policy Institute.

Raising the payroll cap is one popular idea. Currently, the first $106,800 an American makes is subject to the Social Security tax; above that, the earner pays nothing. “If you eliminate the cap, you’re probably getting very close to eliminating the entire Social Security deficit for the next 75 years,” says Christian Weller, senior fellow at the Center for American Progress. “The more common proposal is to raise the cap so 90 percent of earnings are subject to the tax, which would eliminate about a third of the deficit.”

Another idea under consideration is raising the payroll tax rate by a fraction of a percentage point. Although the flat rate of this tax is inherently regressive, some left-leaning experts say it’s preferable to a cut in benefits, especially when the prospect is discussed in conjunction with other modifications like a minimum benefit, as described in a recent report by the Urban Institute.

Not everyone thinks adding to the payroll tax rate is the way to go, though. “It seems to me that raising the payroll tax is the least desirable way to try to move the program towards solvency,” says Will Marshall, president of the Progressive Policy Institute. “It’s a tax on work and makes it more expensive for employers.”

Marshall supports ideas more commonly embraced by the right to make up the shortfall, including an increase in the retirement age and a downward adjustment on the formula used to calculate benefits.

Some Republican politicians are still pushing for privatization, pointing to the rise of the stock market over the long term. Mike Tanner, senior fellow at the Cato Institute, asserts that even if a retiree cashed out at the trough of the market in 2009, he or she would have still experienced a growth in wealth. Given the wariness with which many Americans bruised by a drop in their 401(k) and home values now view the stock market, though, privatization may be a tough sell at least until the current bear market fades from our collective memory. “A lot of Republicans seem to view private investment as some kind of panacea, which I don’t think is correct,” says PPI’s Marshall. “That wouldn’t solve the underlying structural problems.”

Right-leaning experts tend to paint a bleaker view of the Social Security situation in general. Cato’s Tanner explains that the difference is that they include in their calculation of upcoming obligations the cost to be borne by the Treasury when the program cashes in its trust fund bonds. Obviously, that money will have to come from somewhere, but progressive economists like CAP’s Weller, counter that it’s disingenuous for the right to say those bonds pose an economic risk when the Social Security surplus is one factor that was used to justify Bush-era tax cuts in the first place.

Experts of all stripes like to point out that Social Security reform should be a snap compared to changing more complex programs like Medicare. In a strictly economic sense, that’s true. But the discussion around Social Security often threatens to collapse under the metaphorical weight lawmakers have conferred on the program. “It’ll probably be more politically determined than substantively determined,” PPI’s Marshall concedes. “Right now neither side wants to come out of its assigned place.”

“We are breaking every record post-Great Depression on long-term unemployment,” said Heidi Shierholz, an economist with the Economic Policy Institute. Right now, around 35 percent of those without jobs have been unemployed for more than six months, a figure that adds up to 3.6 percent of our country’s labor pool.

The result is a crisis unlike anything seen since the 1930s. “The numbers are unprecedented,” said John Challenger, CEO of Challenger, Gray & Christmas, a human resources consulting firm. “What it suggests and it bears out in reality is that as people become long-term unemployed, they become damaged goods in the job market.”

While economists are divided about the best way to combat this growing problem, most agree on how it happened. The current recession exacerbated an ongoing economic shift from manufacturing to a service base. Troubles faced by Detroit’s Big Three automakers fanned the flames, rendering the skills of many workers obsolete. Even as local economies withered on the vine, workers were rendered immobile, locked into their homes by the real estate crash.

Long-term unemployment is dangerous because it can have a snowball effect, says Kevin Lowden, managing economist at the Milken Institute. The longer someone is out of work, the more likely he or she is to default on his or her mortgage, even low-risk borrowers at the time when the loan was originated.

“You also see significant issues in terms of the effect on consumer demand due to the dramatic increase in savings rate,” he said. While this increase in savings is good for the economy long-term, right now that frugality comes at the expense of consumer spending that could lead to employers hiring more workers.

This epidemic of long-term unemployment also puts an added burden on government coffers. “This is direct drain on budgets in two ways,” said Dean Baker, co-director of the Center for Economic and Policy Research. Government doesn’t collect income tax on laid-off employees, and when these workers go onto unemployment or disability rolls, this creates an additional drain on the system.

For instance, the increase in workers applying for disability has shot up. Currently, some 7 million adults are on disability, an influx so overwhelming that the trustees of the Social Security program predict that the disability fund will be emptied by 2017 if nothing changes.

This mass migration to disability status is primarily a function of our employer-based health care system, according to Lawrence Katz, a professor at Harvard University. “If you have a pre-existing condition, even if you get another job there will be problems with your coverage,” he said. “The one place you can go is disability, where you get onto Medicare. And once they go on, they basically never come off.” Health plans currently under debate in Congress would subsidize low-income citizens and families, which would include the unemployed, as well as ban insurers from eliminating pre-existing conditions, which make going off disability feasible. Currently, those jobless for a long period of time have nothing to fall back on after their COBRA benefit expires.

Even if those who have been unemployed long-term make it back into the workforce, their future earning power suffers. There’s some evidence that post-layoff retraining can mitigate this, but only under certain circumstances. A study out of the University of Chicago’s Harris School of Public Policy Studies found that attending one year of community college gave displaced workers a 5 percent wage boost. Unfortunately, the vast majority of workers enrolled in such programs don’t stick around for even a semester, let alone a whole year.

However, for workers that stick it out and specialize in vocational training, science or mathematics, the returns can be even greater. The study’s authors found a 10 to 15 percent jump in wages for this subset of workers, as well as higher returns for those who already had some degree of college education prior to their participation in the program.

To this end, much of the work that is being done to combat long-term unemployment focuses on retraining workers so that their skills are more in alignment with today’s service-based economy. “The economy has changed fundamentally and our workforce system has not,” said Andy Levin, Michigan’s chief workforce officer, who runs that state’s No Worker Left Behind program. “Most people who lose their jobs can’t replace their standard of living without getting significant training because of the rapid and ongoing march of technology and globalization,” Levin said.

No Worker Left Behind began operating in August 2007 and is funded primarily by the Workforce Investment Act, which was created in the 90s and received $1.25 billion in stimulus funding to help dislocated workers. Since then, No Worker Left Behind has trained 102,000 at-risk or jobless Michigan residents for jobs in growing industries like health care, technology and transportation.

Levin has put into place bureaucratic efficiencies, such as standardizing which types of jobs are eligible for training subsidies throughout the state and streamlining the process that lets jobless workers continue to receive unemployment benefits while pursuing additional education. When the program conducted a survey this April, they found that nearly half of the workers who had completed training had landed a job, 86 percent in a field that related to their training.

Other economists say that programs such as No Worker Left Behind, while helpful, don’t do enough to address the root of the problem: the overwhelming lack of jobs. Although the pace at which companies are laying off workers has slowed, companies aren’t rehiring, which means there are still too few jobs to go around. Traditionally, small businesses are the first to hire when the economy picks up steam after a recession; however, small-business financing has dried up due to the credit crunch, preventing entrepreneurs from expanding and adding employees.

“The crisis is just so big at this point with 10.2 percent unemployment that we’re thinking about new direct job creation proposals because the scale of the problem is so large,” said Allegra Baider, senior legislative associate at the Center for Community Change. That group, along with a host of other advocacy and labor organizations, recently released a joint statement calling for new investment in job creation in fields such as infrastructure and education.

“A top priority ahead of job training is we’ve got to fix the labor market and start generating jobs,” said the Economic Policy Institute’s Heidi Shierholz. The Obama administration plans to hold a jobs summit next month examining incentives like tax credits to encourage businesses to hire new workers.

John Challenger of Challenger, Gray & Christmas acknowledged that even if such programs succeed, many Americans will have to make adjustments. “One of the things that’s happening is a steady career at one large company or in a company town is no longer available, and people at all levels can no longer think of their careers as always progressing upwards in income.” Even as they learn new skills, employees also have to be taught how to be flexible so they can adapt to the twists and turns of the 21^st-century economy.

While the plight of the jobless tends to dominate social policy conversations and media coverage, a less-exposed but equally vulnerable population is the millions of underemployed. This diffuse, often poorly tracked cross-section of citizens who bear the individual and collective challenges living on the economic fringes often go overlooked by policy makers and elected leaders.

“The number of people under economic stress is much bigger than the official unemployment rate,” said Chad Stone, chief economist at the Center on Budget and Policy Priorities. Who are these people? The Bureau of Labor Statistics takes a stab at quantifying these people to create a more comprehensive picture of who’s not working and why not. The Bureau identifies categories of Americans it labels as “marginal,” meaning that they are unemployed and have looked for a job in the past but not recently, and “employed part time for economic reasons,” referring to workers who would take full-time schedules if they could. Once these groups are added to the base unemployment rate, the number climbs all the way up to 15.8 percent in April, the highest number since the BLS began tracking these sub-groups in 1994.

Yet, there are some who say even these numbers don’t tell the whole story. Progressives talk about “skill underemployment.” “It’s the computer engineer who lost [his] job and is now working at 7-11,” said Heidi Shierholz, an economist with the Economic Policy Institute. “They show up as employed, not as a bad labor market outcome,” she said. In reality, though, these workers, are both earning and contributing far less than their potential — one definition of underemployment. The labor bureau’s data-collection also doesn’t take into account the millions of Americans who have had their hours or wages cut in recent months.

tanks argue that stay-at-home-mothers who could find work but can’t find affordable childcare should also be included. They also

There’s no single agency that tracks the underemployed, so researchers have to cobble together data from all corners of the economy to come up with an estimate on disenfranchised workers. According to Philip Harvey, a professor of law and economics at Rutgers School of Law, the United States is short by nearly 23 million jobs, a far greater number than the 13.7 million of officially unemployed workers.

Gertrude Goldberg, chair of the National Jobs for All Coalition, says that lowballing the number of distressed workers leads to an inadequate response. “By under-defining it you reduce the notion of a mass of people at risk in terms of tomorrow,” she said. And while they may disagree on precisely how to count underemployed Americans, nearly all agree that their growing numbers could lead to problems both in the short term as well as in the future.

“When you have productive people that can’t get the hours they need, that represents a huge contraction for the economy,” said Heidi Shierholz of the Economic Policy Institute. Lower paychecks in the case of forced part-time employment means less money going into federal, state and city tax coffers, at a time when many local governments can ill afford a shortfall.

Social Security also takes a hit, according to Shierholz. “To the extent that people paying into Social Security are paying a percentage of their income, as people are seeing their hours reduced, that reduces their weekly paychecks, so that will reduce the amount they pay into Social Security.” In reference to recent concerns about the longevity of the Social Security trust fund, she said, “It is absolutely a contributor to this.”

As bad as this sounds, the damage to individuals’ own retirement accounts is even greater. “One of the biggest factors for having larger 401(k) balances is continuous participation in a plan,” said Craig Copeland, senior research associate for the Employee Benefit Research Institute. Since 401(k) contributions grow from stock market gains, workers who are laid off even briefly miss out on the chance to invest while the stock market is low. Companies are allowed to impose a one-year waiting period on new hires’ participation in retirement plans, so the unemployed who return to the workforce face a “time out” period that could cost them dearly in the long run.

The workers classified as involuntarily part-time by the Bureau of Labor Statistics face even greater hurdles. According to EBRI research, in 2007, only18 percent of male and 26 percent of female part-time workers participate in employer-offered retirement benefit plans. The reason for this is twofold, said EBRI’s Copeland. These employees are less likely to have the extra income to invest in a retirement plan. In addition, most companies don’t even offer retirement benefits for those who work fewer than 20 hours a week.

Underemployment also means that a worker’s Social Security benefits could be reduced when he or she collects them in retirement. This combination of reductions in private and public income streams means that when these potentially millions of underemployed Americans exit the workforce, the government could be facing a crisis of underfunded retirees.

Implications for health insurance are also troubling. Elise Gould, health economist at the Economic Policy Institute, says that in 2007, the most recent year for which statistics are available, only 55 percent of part-time employees had employer-sponsored health insurance, as compared to 74 percent of their full-time counterparts. It’s likely that these numbers have dropped further since then, she added. “There’s been a downward trend in these since 2000, and I would expect these to have only gotten worse.”

This health care gap has serious consequences, according to David Dooley, chair of the department of psychology and social behavior at the University of California, Irvine. Dooley studied the mental-health effects of underemployment as compared with unemployment. Rates of depression, alcohol abuse and other markers were similar for both groups. “The general patterns is that we get the expected adverse effects of complete job loss with inadequate employment,” he said.

However, while programs such as Medicaid and COBRA exist to help the unemployed, there are no comparable health care alternatives for underemployed workers. “If people show signs of depression or increased drinking, they’re not going to have the resources for early intervention,” said Dooley. “If they’re in a downward spiral there’s not going to be anyone to slow it down.”

Despite these troubling clues, though, people like Gertrude Goldberg of the National Jobs for All Coalition say the government hasn’t been aggressive or inclusive enough in designing stimulus programs that help out the underemployed as well as the unemployed. Although the federal government has extended unemployment benefits and given states money to boost the benefits by a nominal amount, none of this helps the employee forced to work a four-day week or take a part-time job to replace lost full-time employment.

Heidi Shierholz of the Economic Policy Institute says not to count on the promised job creation benefits of the stimulus either. “By the time the stimulus package was implemented it was already behind,” she said. “It was only expected to create between three and five million jobs. By the time it got off the ground we were seven million jobs in the hole.” She and others warn that if the underemployed are allowed to slip through the cracks, economic recovery will be all the more elusive.