A direct question to any candidate for President is: “What will you do with Social Security?” We’d like a direct answer. Legislative proposals. Budget implications.
The question we ask ourselves is: “Will Social Security be there for me?” The answer to that is more complex.
The story isn’t solely that Social Security’s Trust Fund will be depleted, estimated to happen in 2033 in this year’s Trustees Report. It’s worse — especially for politicians. This social program pits younger workers against the retired and soon-to-be retired. The ultimate generational conflict. How do politicians court groups with such divergent interests?
The following chart reveals that we in the U.S. are in a hole. We deepen that hole each year that we put off addressing Social Security’s funding. Do we raise the payroll tax rate? That takes income out of younger workers’ paychecks. 47% of them don’t even expect Social Security to exist when they retire. (Why is that surprising when Social Security’s pending insolvency has been ignored for decades?) Do we allow the substantial benefit reductions to happen within ten years and do nothing? Shouldn’t we be telling seniors on Social Security to plan for that reduction? It’s a little late for them to return to work. They are the oldest in the society. Won’t the government be there for them? How do those benefit reductions get “fairly” doled out? That’s a formula from hell.
As the chart illustrates, by waiting and waiting — decade after decade, the “Either/Or” choices both get worse and worse. The chart shows the percentage point increase in the payroll tax rate or the percent benefit reduction needed to fill that hole each year. The numbers have been rising year after year. [Links seem obvious when I draft a post in WordPress, but aren’t as obvious when published. I am making the links, like the following one with its charts, more obvious by isolating them. It’s easier than teaching a 73-year-old brain to do it through programming.] LINK:
GrowingGenerationalConflictEitherOr
Another proposal keeps resurfacing. That is to increase the retirement age. Financially, that does decrease the amount of benefits that would be paid over the program’s 75-year planning horizon. But that idea tends not to propose that the increase go into effect immediately. The last time that tactic was used was in the 1983 amendments, which increased the retirement age gradually, beginning years after those amendments. It reduced the speed of drawdown by the Baby Boomers themselves. We have fewer workers, not more workers in the workforce this time. Proposing increasing the retirement age only continues what we’ve been doing for decades — putting off the immediate problem.
Here’s what the 1983 amendments did. LINK:
SocialSecuritytRetirementAgeandBenefitReductionSSA
Here’s an excellent article that discusses many issues surrounding increasing the retirement age. LINK:
“Bits and Pieces”
We are all in this together. That’s not a Kumbaya statement. It reflects that 1) every Presidential commission unanimously recommended retaining the program and 2) that having a program is a valuable social program for all. To solve the program’s deficiencies will require contributions and compromises from all parts of the body politic. Not just tweaking.
Social Security’s initial purpose organized on a national scale what was already being done piecemeal to address poverty among the elderly. It began in 1935 during the Depression. The Social Security Administration has a number of informative articles on the program’s history.
In my opinion, contributions from the General Fund are hard to imagine with the huge debt burden, ongoing national deficit spending, and competing demands for public dollars from many other sectors. The electorate has perhaps become numb to the political mantras, “The Rich should pay their fair share,” or “Tax the Rich.” Those phrases have remained the same proposed solution when the U.S. was $5 trillion in debt, then $20 trillion, and now $35 trillion. We do have a tax code issue. Here is a surprising fact. The Rich paid a 91% tax rate after World War II to pay down war debt, a rate which lasted until a Democrat, John F. Kennedy, proposed reducing the rate in 1963, and another Democrat, Lyndon Johnson saw it through Congress in 1964. Times have changed. It’s time to stop demonizing on both sides and to set our national priorities. The financial ones above all.
Here’s an observation to consider. After assembling all this data from reading over four decades of Trustees Reports, preparing all these charts, reading about Presidential study commissions, and wrestling with the implications of immigration on those depletion dates, I realized that the huge Trust Fund built by the Baby Boomers lulled us all to sleep. Earlier, in the program’s first decades, it experienced many ups and downs. Congress tweaked it here and amended it there. The big, fat Trust Fund made us all complacent. Can we really blame this on politicians when it was voters who didn’t want Social Security touched? It is largely the same structure since the 1983 amendments. The problem was never immediate. We could wait. Now it’s immediate — within the 10-year “short-term” timeframe which requires Congress to take action under the Act’s provisions.
I also propose that the Trust Fund is likely to be depleted sooner than 2033. Take a look at the immigration-and-Social-Security post on this blog. At several points (the 2015 “reallocation,” post-Covid “recovery”), the immigration assumptions are used to help the required forecast model kick out an estimated depletion date a little bit further out. I entered the Trustees Report forecast numbers in the charts. They aren’t mine. I just point out the “goosing,” especially because immigration is such a hot issue. We do have a border issue. But politicians present it broadly to provoke rage. The real issue is that it is on the southern border, and those states on the southern border bear the brunt without empathy (or financial resources) from the rest of the nation. The immigration numbers of recent years show fewer immigrants than forecasted for those years. Those are humans forecasted to be in the workforce, paying OASDI taxes to pay current benefits. If they aren’t working here, Social Security will have lower income and therefore deplete the Trust Fund sooner.
Restructuring and refining the program is needed. How should the program operate? Is it a program solely to minimize poverty among the elderly? That is a very different goal from what Social Security has become. It is now a modest retirement program that benefits all ages, a public sector foundation supporting private sector initiatives and a citizen’s individual responsibility for retirement savings.
Other Key and Related Social Security Category Posts
This post provides an overview of Social Security’s structure. Knowing those main structural features is key to understanding the program’s future, including “Trust Fund” depletion. How would the next President cut taxes #1 if the Social Security program needs more income to avoid depletion/deficits? And — structural point!!! — its source of income is payroll taxes? It also has a tidbit on how Social Security’s Baby Boomer surpluses helped U.S. federal budgets over the decades and administrations. That’s at the end of the post. LINK:
http://www.fairytalecapitalist.com/social-securitys-structure-and-pending-trust-fund-depletion/
Immigration is a hot topic in the 2024 election. Immigrants entering the workforce and paying payroll taxes are essential to postponing depletion of the Social Security Trust Fund. At depletion, the program cannot pay full promised benefits. Further, take a look at how the Social Security Administration uses immigration assumptions. Including for the 2015 federal budget. Lots of data pulled out of their annual reports to Congress for your viewing. LINK:
http://www.fairytalecapitalist.com/social-security-immigrants-needed-for-future-benefit-payments/
Did Congress “raid” Social Security? Using the word”reallocate” is less emotional, less rage-baiting, and technically very correct. Here’s what happened — twice. Described with charts and data in the following post. (Non-trigger-warning: Congress did NOT move money outside the Social Security/Disability combined programs for use elsewhere in government spending. LINK:
Some U.S. Presidents had it easier than others as the Baby Boomers passed through the job market over several decades. Here is a summary post of highlights in each administration, starting with Reagan. LINK:
http://www.fairytalecapitalist.com/presidencies-and-social-securitys-future/
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