Social Security (the “Old Age” income component) is the supreme entitlement program in the US. Created in the 1930s in response to the widespread destitution of the Great Depression, its basic structure hasn’t changed much in almost a century. It’s long past due for an overhaul, but the politics make it pretty tough. That’s why it has been known as the “third rail” of American politics for decades; to touch the topic is to ensure political electrocution. Even if we’re not talking about significant changes, the embedded base of beneficiaries and expectant beneficiaries pretty much ensures that anything more than minor tweaks will get nowhere. The result will be that the crash will be far worse than it need be and the generation what has made out best will escape the majority of the inevitable pain.
According to the most recent estimates, the pot will start to go dry in less than ten years. Our usual policy solution of “kicking the can down the road,” such as the proposal by Senators Moreno (R-Oh.) and Warren (D- Ma.) to increase the funding pool will likely buy a decade or so, but then…?
The underlying problems are both historical and demographic. The laudable goal of ensuring older folks could have a modestly comfortable retirement arose before there was a widespread set of general welfare/income support programs in our country. Social Security was sold on the basis that it wasn’t “welfare” (or, worse, “socialism”!) since the amount that people paid in over their working life determined the level of benefits later received. By keeping all that cash in a “trust fund” (not easily accessible by Congress and the contingencies of the regular Federal budgetary process), people could feel confident that their payments would be returned to them in due course.
However, in fact, almost everybody receives more than they paid in, even accounting for inflation. So, the myth of the “non-welfare” program doesn’t hold water. Nor does the illusion that the “trust fund” protects beneficiaries. Of course, from a legal perspective, Congress could crash in and scoop up the money (currently a bit over $2.5 trillion) if it saw fit (politically feasibility is a different matter). Instead, as with most such “off-book/off-budget” schemes engendered by our accounting rules, it’s just a way to let people pretend that it’s safe. No one can really doubt that Congress will never let the fund go bankrupt, which means that, in the end, Social Security is still funded by our overall pot of tax revenues (yes, we could include tariff revenues too (if we actually collected a fraction of what has been “trump-eted” about over the past 18 months)).
In sum, since we’re afraid of looking like a “socialist” society where we all pitch in to take care of those in need through governmental mechanisms, we have an artificially structured program that only looks like it’s at long term financial risk.
A more mature approach would be to simply acknowledge that this is general public support for the older folks who need it and fund it out of general tax revenues. That way we could get rid of the payroll tax (which is modestly regressive), the complicated structures of semi-exclusion from income tax, and the somewhat ridiculous payments to the wealthy who happen to be retired. Indeed, more generally, we could ask why older folks in need should be treated differently than younger folks in need?
A second useful, if lesser, change would be to shift the age of eligibility back from the current start date (nominally 67, but the recipient’s choice between the age of 62 and 70) to reflect the reality of 21C longevity and working patterns. After all, when the program was started, the life expectancy of a 65-year-old retiree was 12.7 years, now it’s over 19 years. (For someone born today, it’s about 23 years!) This could be done gradually, protecting those who are over 50, for example, and gradually deferring the start date of eligibility for those younger folks who currently don’t have much attention to their ultimate retirement.
Thus, it seems that the biggest barrier to sensible policy is not economics, but psychology. Americans don’t like to think that we’re “on the dole.” The illusion of Social Security as a self-funded retirement scheme fits our self-image of self-reliance; but it’s a self-delusion.
In any event, it’s not just the impending bankruptcy of the program that calls out for fundamental change. The aging of our population means that the average number of working-age folks per retiree is dropping, which is to say that each tax-paying worker is supporting an increasing percentage of a retiree. The math isn’t sustainable. Moreover, the political problem is looming larger. Millennials and Gen Z’ers (and Gen Alphas) are already pretty upset with the mess we’ve left them in terms of climate, economy, infrastructure, housing, civic society, etc. Now we’re going to ask them to pay even more to keep us in our retirement. So far, old folks tend to vote in much higher numbers than younger folks, but this, too, will shift and the political mechanisms will respond. Typically, most of us Boomers will be fine, it’s the Gen X’ers (those turning 65 between 2030 and 2050) who will hit the fan.
Those who persevered during the Great Depression, fought WWII, and launched the great American boom times of the later 20C are sometimes referred to as the “Greatest Generation.” It’s an inspirational generalization that will stand in sharp contrast to us fat-and-happy Boomers who followed them. Even though we were blithely ignorant of most of our sins, future historians will likely sling a rich range of epithets at us about the number of issues we didn’t address maturely. It’s another reason to remember that History should avoid being judgmental about the behaviors and attitudes of the past.
According to the most recent estimates, the pot will start to go dry in less than ten years. Our usual policy solution of “kicking the can down the road,” such as the proposal by Senators Moreno (R-Oh.) and Warren (D- Ma.) to increase the funding pool will likely buy a decade or so, but then…?
The underlying problems are both historical and demographic. The laudable goal of ensuring older folks could have a modestly comfortable retirement arose before there was a widespread set of general welfare/income support programs in our country. Social Security was sold on the basis that it wasn’t “welfare” (or, worse, “socialism”!) since the amount that people paid in over their working life determined the level of benefits later received. By keeping all that cash in a “trust fund” (not easily accessible by Congress and the contingencies of the regular Federal budgetary process), people could feel confident that their payments would be returned to them in due course.
However, in fact, almost everybody receives more than they paid in, even accounting for inflation. So, the myth of the “non-welfare” program doesn’t hold water. Nor does the illusion that the “trust fund” protects beneficiaries. Of course, from a legal perspective, Congress could crash in and scoop up the money (currently a bit over $2.5 trillion) if it saw fit (politically feasibility is a different matter). Instead, as with most such “off-book/off-budget” schemes engendered by our accounting rules, it’s just a way to let people pretend that it’s safe. No one can really doubt that Congress will never let the fund go bankrupt, which means that, in the end, Social Security is still funded by our overall pot of tax revenues (yes, we could include tariff revenues too (if we actually collected a fraction of what has been “trump-eted” about over the past 18 months)).
In sum, since we’re afraid of looking like a “socialist” society where we all pitch in to take care of those in need through governmental mechanisms, we have an artificially structured program that only looks like it’s at long term financial risk.
A more mature approach would be to simply acknowledge that this is general public support for the older folks who need it and fund it out of general tax revenues. That way we could get rid of the payroll tax (which is modestly regressive), the complicated structures of semi-exclusion from income tax, and the somewhat ridiculous payments to the wealthy who happen to be retired. Indeed, more generally, we could ask why older folks in need should be treated differently than younger folks in need?
A second useful, if lesser, change would be to shift the age of eligibility back from the current start date (nominally 67, but the recipient’s choice between the age of 62 and 70) to reflect the reality of 21C longevity and working patterns. After all, when the program was started, the life expectancy of a 65-year-old retiree was 12.7 years, now it’s over 19 years. (For someone born today, it’s about 23 years!) This could be done gradually, protecting those who are over 50, for example, and gradually deferring the start date of eligibility for those younger folks who currently don’t have much attention to their ultimate retirement.
Thus, it seems that the biggest barrier to sensible policy is not economics, but psychology. Americans don’t like to think that we’re “on the dole.” The illusion of Social Security as a self-funded retirement scheme fits our self-image of self-reliance; but it’s a self-delusion.
In any event, it’s not just the impending bankruptcy of the program that calls out for fundamental change. The aging of our population means that the average number of working-age folks per retiree is dropping, which is to say that each tax-paying worker is supporting an increasing percentage of a retiree. The math isn’t sustainable. Moreover, the political problem is looming larger. Millennials and Gen Z’ers (and Gen Alphas) are already pretty upset with the mess we’ve left them in terms of climate, economy, infrastructure, housing, civic society, etc. Now we’re going to ask them to pay even more to keep us in our retirement. So far, old folks tend to vote in much higher numbers than younger folks, but this, too, will shift and the political mechanisms will respond. Typically, most of us Boomers will be fine, it’s the Gen X’ers (those turning 65 between 2030 and 2050) who will hit the fan.
Those who persevered during the Great Depression, fought WWII, and launched the great American boom times of the later 20C are sometimes referred to as the “Greatest Generation.” It’s an inspirational generalization that will stand in sharp contrast to us fat-and-happy Boomers who followed them. Even though we were blithely ignorant of most of our sins, future historians will likely sling a rich range of epithets at us about the number of issues we didn’t address maturely. It’s another reason to remember that History should avoid being judgmental about the behaviors and attitudes of the past.
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