Social Security can’t grow its way out of trouble

In just 10 years, Social Security will be insolvent. Some politicians think we can ignore the problem or grow our way out of it — but that’s a recipe for disaster.

Without action, the law calls for an immediate 23% across-the-board benefit cut upon insolvency. That’s a $17,400 cut for a typical 67-year-old couple retiring in 2033 and an even more devastating cut for current low-income retirees who count on the program.

Politicians would be clamoring to avoid this cut in a more normal world. Democrats would be focused on how to get more revenue into the system. Republicans would advocate for bringing cost growth under control. The two sides would agree on the need to target any changes on those who can afford them most and would be open to compromise for the greater good.

Sadly, the real world is far more dystopian. In the State of the Union address this year, President Joe Biden declared Social Security should be “off the books” for discussion. Former President Donald Trump has similarly promised not to touch Social Security. And half the GOP presidential candidates gave bogus do-nothing answers for how to save it.

Gov. Ron DeSantis of Florida declared that achieving 3% annual economic growth would solve Social Security’s woes. Not to be outdone, South Carolina Sen. Tim Scott — who has since dropped out of the race — promised 5% annual growth. And entrepreneur Vivek Ramaswamy claimed we could get between 3% and 5% economic growth. This is all wishful thinking.

Don’t get us wrong, economic growth is great — and the more, the better. Faster growth means higher incomes, it means more retirement savings and it means a stronger Social Security system.

But the idea we’re going to achieve this level of growth is pure fantasy. And even if we did, it wouldn’t save Social Security.

Every prominent economic forecaster — from the Congressional Budget Office and the Federal Reserve to the Blue Chip survey and the White House’s Office of Management and Budget — projects long-term sustained growth over the next decade will average around 2%.

Achieving 3% sustained growth would require levels of productivity growth, capital growth and labor force participation last seen in the 1990s — an unlikely prospect given our aging population, lagging productivity and near-record levels of national debt. Sure, we may be lucky to get one or two years of very fast growth — like in 2021, when the economy grew by nearly 6% due to the COVID recovery and reopening — but it’s doubtful that we can sustain much higher growth. Even the most aggressive mix of growth-enhancing policies wouldn’t be enough to get there.

And even if we did somehow achieve dramatic improvements in economic growth, it would be unlikely to save Social Security. Faster growth means more taxes coming in. But because benefits are indexed to wages, it also means more benefits going out.

At the end of the day, the only way we are going to fix Social Security is by actually fixing Social Security. That means boosting Social Security taxes and slowing the growth of benefits.

To their credit, two GOP candidates — Nikki Haley and former New Jersey Gov. Chris Christie — proposed to do just that when they endorsed raising the Social Security retirement age. An age increase would improve solvency and help grow the economy by boosting labor force participation.

Any increase in the retirement age should be accompanied by improvements that protect the most vulnerable seniors. And it certainly isn’t the only option to save Social Security — we should also consider increasing the income subject to the payroll tax, slowing benefit growth for higher earners and other measures.

But the focus should be on real solutions, not magical fixes or ignoring the problem. If we don’t make these choices today, all beneficiaries will face a deep benefit cut within a decade.