The Social Security fix no one is talking about
Send a link to a friend
[May 07, 2024] By
Mark Miller
(Reuters) - What if the traditional wisdom on how to fix Social Security
no longer holds?
The trustees who oversee the program issued their annual financial
forecast on Monday, predicting that the combined retirement and
disability trust fund reserves will be depleted in 2035 - one year later
than forecast last year. The improvement is due to the recent strong
economy and wage growth, which has accelerated payroll tax payments that
fund the program. Still, in 2035, the program would be insolvent.
That may sound like Social Security will have no money at all to pay
benefits in 2035. But what the report really means is that the enormous
Social Security trust fund reserves - currently $2.78 trillion - would
be depleted, and the program would be bringing in enough cash at that
point to pay only 83% of the benefits promised to current and future
beneficiaries. That would be the equivalent of a 17% cut in benefits.
A benefit cut of that magnitude is extremely unlikely. It would pose an
immediate and severe hardship for retirees and disabled people, and it
is difficult to imagine any member of Congress willing to explain such
an outcome to constituents.
Traditional wisdom holds that there are just a few ways to solve the
problem: We can raise the payroll taxes that fund the program, cut
benefits, or do some combination of two.
But the closer we get to insolvency, benefit reductions cannot be
implemented in a way that solves the immediate problem. And a revenue
solution gets more challenging - at least, if the goal is to meet Social
Security’s legal requirement to forecast solvency over a 75-year period.
The payroll tax hikes required at the point of insolvency to meet that
goal would be so large that they likely would not be politically
feasible.
![](http://archives.lincolndailynews.com/2024/May/07/images/ads/current/humanesociety_sda022411.png)
Polling has long indicated that the public supports higher taxes as a
way to keep Social Security solvent and maintain benefit levels.
Democrats - including President Joe Biden - support raising taxes on the
wealthy to restore solvency. They also propose raising benefits
modestly. Republicans in Congress oppose higher taxes, and have
supported benefit cuts via higher retirement ages and means-testing.
Donald Trump usually says he would not touch Social Security, although
he has mentioned possible cuts to benefits and his advisers are
considering cuts to payroll taxes. Leaving the program untouched is not
a policy solution, since it points to the aforementioned 17% cut in
benefits.
If Democrats sweep the U.S. elections in November, a revenue solution is
possible, said Nancy Altman, president of Social Security Works, a
progressive advocacy group pushing for expansion. “If Democrats run this
fall on expanding Social Security and win on that issue, they can push
for it and force votes.”
Martin O’Malley, the recently confirmed commissioner of Social Security,
is optimistic that a solution will be reached. “I’ve met with a lot of
members of Congress, and my sense is that no one is particularly eager
to play chicken with a program that’s this important to so many seniors
and people with disabilities,” he told me in an interview on Monday.
But if gridlock persists on this issue, Congress might well turn to a
different solution to avert insolvency and benefit cuts: an emergency
injection of general government revenue.
[to top of second column] |
![](../images/050724PIX/busine83.jpg)
A sign is seen on the entrance to a Social Security office in New
York City, U.S., July 16, 2018. REUTERS/Brendan McDermid/File Photo
![](http://archives.lincolndailynews.com/2017/Jul/22/images/ads/current/rohlfs_lda_072017.png)
“If you had asked me 20 years ago, I would have predicted a solvency
solution that leaves the current system intact, but I no longer
think that will happen,” said Charles Blahous, who served as one of
the two public trustees for Social Security and Medicare from 2010
to 2015. A conservative, he now researches retirement security
issues at George Mason University. “But barring a political miracle
and a lot of leadership, I now think we’re headed toward a general
revenue bailout.”
That would be a profound turning point for Social Security, which
has always been self-financed. The program is funded primarily by
the payroll tax, currently 12.4%, which is split evenly by employees
and employers. It is also funded by smaller amounts of revenue from
interest earned on trust fund bonds and taxation of benefits.
HOW THE MATH WORKS
The logic backing the general revenue solution is straightforward.
Even if consensus emerged for some amount of benefit reduction close
to the insolvency date, the math simply does not work due to the
magnitude and timing of the cuts required.
"You couldn’t implement a 25% cut overnight, because it would have a
terrible effect on the income of current beneficiaries," said Paul
N. Van de Water, senior fellow at the Center on Budget and Policy
Priorities, a progressive think tank. “And phasing in smaller cuts
over a longer period of time doesn’t solve the short-term problem.”
Adding general revenue would mean that Social Security - for the
first time - would be adding to the nation’s debt burden, since the
money would be borrowed. The shift also could put Social Security in
the same boat as other federal programs subject to annual
congressional appropriations for things like food and housing.
But Van de Water is more sanguine about the implications of using
general revenue to fund the program. “Social Security has become
sufficiently popular and ingrained over the years that it's not
clear having some non-earmarked financing would diminish the
strength and support for the program all that much.”
Unfortunately, this likely game of brinkmanship will only the
worries expressed by so many Americans about the future of Social
Security. If you are among those worriers, Van de Water has some
words of reassurance.
“Despite the uncertainty, it’s very unlikely that Congress would
allow full benefits not to be paid for Social Security," he said.
"There may be a lot of angst before a solution is reached, just as
we’ve had angst on other budget issues, but it will be solved.”
The opinions expressed here are those of the author, a columnist for
Reuters
(Writing by Mark Miller; Editing by Matthew Lewis)
[© 2024 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
![](http://archives.lincolndailynews.com/2024/May/07/images/ads/current/ldn_smallsda_BUSINESSMAG_2023.png) |