A Social Security crisis is a terrible thing to welcome
If you’re on Social Security, rest easy: Nobody’s cutting it. If you’re not on it yet, worry a little: Nobody’s making it solvent either.
Some Republicans would like to slow down the growth of Social Security benefits, it’s true, but most of them are too scared of losing their seats to try it. House Speaker Kevin McCarthy (R-Calif.) says that Congress should restrain spending as it raises the debt limit this year, but he has ruled out making changes to Social Security or Medicare.
Those two programs for older Americans account for nearly one-third of federal spending. The Congressional Budget Office projects that deficits will triple as a share of our economy during the next three decades. The growth of these two programs, plus interest costs, explains nearly all the added red ink.
Medicare spending does inspire Congress to act every once in a while. Last year, the Inflation Reduction Act cut subsidies for prescription drugs. Social Security, on the other hand, has not been reformed for 40 years. In 2000, the program’s trustees estimated it would be unable to cover all of its promised benefits in 2037. After years of inaction, they now estimate it will be in 2035.
No problem, say most Democrats. In a recent television appearance, Rep. Raja Krishnamoorthi (D-Ill.) said that Social Security merely needs some “adjustments.” There’s a cap on the payroll tax that principally funds it: This year, the tax applies up to $160,200 in income. Anyone who makes more than that pays no additional Social Security tax. The congressman, like President Biden, wants the tax to apply to wages above $400,000, too.
Budget modelers at the Wharton School say the Biden plan would close 43 percent of the program’s long-term funding gap. But this would be more than a small adjustment. It means raising the top tax rate by 12.4 percent (half paid, at least nominally, by employers): the biggest hike in nearly 90 years. The United States would have a higher top tax rate than the United Kingdom, France, Germany or any Nordic country.
You don’t have to share conservatives’ strong preference for low tax rates to consider this unwise. The opportunity costs should make liberals balk, too. This gargantuan tax increase would do nothing to advance any other potential government priority, from bringing children out of poverty to fighting climate change. Medicare would still need fixing — and Social Security would still have most of its shortfall.
Krishnamoorthi mentioned another partial solution: We should “upskill” workers without college degrees so that they earn higher wages and then pay more into the system. Republicans, similarly, sometimes talk about growing our way out of the problem. But even if we knew how to do these things — if we had confidence that some suite of government policies would supercharge the economy — it would not fix Social Security’s structural shortfall. Under existing federal law, higher wages would lead to higher Social Security benefits, too.
It’s the automatic growth of benefit levels, not just the aging of the country, that has made Social Security more expensive. A middle-income worker who retired in 2000 got $19,501 per year in today’s dollars. The program as currently designed is supposed to give his counterpart who retires in 2035 roughly $30,600. Over the same period, the maximum benefit level will go from $52,845 to $75,381.
Many Americans believe that Social Security merely gives them back what they paid in, but that’s a (carefully cultivated) myth. The program’s actuaries estimate, for example, that a one-earner couple who made a medium wage and then retired in 2008 will get 50 percent more than they paid in.
Which is lovely. But the only way to keep benefits for the middle class and upper middle class growing so fast is to tax them more while they’re working. That’s because our ability to incur debt and to squeeze the rich are finite, and because we have other priorities, too.
An alternative would be to limit benefit growth so that tomorrow’s retirees get the same monthly payments as today’s, plus inflation. That would be a “cut,” but only from future benefit levels that we have made no provision to pay for. It would not be a cut from today’s benefit levels. It would fill 80 percent of the shortfall.
There is, however, one more alternative. We keep doing nothing, come up to the edge of the large and abrupt benefit cuts that current law mandates when the program goes insolvent, and endure the resulting crisis. This appears to be what we are deciding to do.
An alternative would be to limit benefit growth so that tomorrow’s retirees get the same monthly payments as today’s, plus inflation. That would be a “cut,” but only from future benefit levels that we have made no provision to pay for.