Social Security Is the Titanic Headed For the Iceberg
There is bad news to come regarding Social Security - not merely for the "1 percenters" but for ordinary Americans, who must either pay more to Social Security or receive less from it. Expanding Social Security, as some of members of Congress have proposed, isn't rearranging the deck chairs on the Titanic. It is like adding more passengers.
The Congressional Budget Office (CBO) recently released its latest financing projections for the Social Security program, showing a long-term funding shortfall that has more than quadrupled since 2008. The program's trust fund, which in 2008 the CBO projected would last until mid-century, is today projected to run out two decades earlier, in 2029. At that time, by law, benefits would be cut across the board by one-quarter.
But anyone expecting that news to push lawmakers to act on Social Security reform is likely to be disappointed. Social Security's shortfalls have been on a steady increase in recent years, yet seemingly no one cares. Neither the administration nor the Congress has any plans to make the program solvent.
It wasn't always this way. In the late 1990s, Social Security reform was a bipartisan issue. Senate Democrats such as New York's Daniel Patrick Moynihan, Nebraska's Bob Kerrey and Louisiana's John Breaux joined fiscally-minded Republicans in drafting plans to make the financially-troubled program solvent.
But today, the only bipartisanship is in ignoring Social Security's problems. Republicans, stung from President Bush's failure to pass reform in 2005, have mostly been AWOL on Social Security. Former Arkansas Gov. Mike Huckabee, who is running for the Republican presidential nomination, has pledged not to reduce benefits, without specifying how he would pay for them. President Obama has withdrawn his only Social Security proposal, to peg Cost of Living Adjustments to the so-called "chained" Consumer Price Index, and even this would have fixed barely one-fifth of the long-term funding gap.
Worse, this spring nearly the entire Senate Democratic caucus voted to support the once-fringe idea of expanding Social Security. Only two of the forty-four Democratic Senators opposed an amendment from Sens. Elizabeth Warren (D-MA) and Joe Manchin (D-WV) to increase Social Security benefits. In a press release Sen. Manchin stated, "Senator Warren and I are committed to making sure the Social Security Trust Fund remain permanently solvent so that this great promise will be available for generations to come." But a real commitment would be to pay for the benefits Social Security already owes before promising more.
How hard is it to make Social Security solvent without cutting benefits? So hard that even Independent Sen. Bernie Sanders, who is now running for the Democratic Presidential nomination, can't do it. Sanders's reform proposal would eliminate the $118,500 cap on wages subject to payroll taxes, which would effectively raise the top federal income tax rate by 12 percentage points. Sanders also would, for the first time, apply Social Security taxes to investment income. But despite tax increases far larger than those President Obama was able to enact, Sanders' plan still falls decades short of the traditional goal of making Social Security solvent for 75 years. Even if the Sanders plan passed, today's young Americans would receive less than 90 percent of their promised Social Security benefits.
But it need not be that way. If Senate Democrats wish for better protections against poverty in old age, fiscally-responsible reforms can provide for them. Social Security's funding problems aren't due to the very poor - 20% of whom fail to even qualify for retirement benefits - but to benefits paid to middle and upper income Americans who do not save as much as their parents and grandparents did. Likewise, if progressives want incentives to make delayed retirement more attractive, reform can provide that as well, such as by lowering the payroll tax on older workers. What no reform can provide is new, higher benefits without the money to pay for benefits that already have been promised. And even progressive Democrats implicitly concede, by their unwillingness to propose comprehensive reform plans, that there isn't the political will to raise taxes high enough to pay for all the benefits they wish to promise.
The single biggest threat to Americans' retirement security is Social Security's pending insolvency. If there is any definition of fiscal irresponsibility, it is to increase a program's benefits before paying for the benefits the program already has offered. Sadly, the recent vote to expand Social Security means that almost the entire Senate Democratic caucus has not learned this lesson.