05 Apr Tough Issue #6
Social Security Reform / Entitlements
You may or may not have watched President Biden’s State of the Union Address this year. The “highlight”—or at least the part talked about most the next day—was when Biden strategically accused Republicans of wanting to cut Social Security. Some of them in attendance shouted denials and booed.
Expecting this, President Biden retorted: “Social Security and Medicare is off the books right now, right? They’re not going to be touched? All right. We’ve got unanimity.” The trap was sprung.
The problem, however, is that being “touched” is exactly what our entitlement programs need, and few leaders in Washington, D.C. have the guts even to say so.
Basics of Social Security Reform and Entitlements
What the issue is: How the United States government can keep its promises to senior citizens without going further in debt.
Why this issue is difficult: Social Security and Medicare, both of which the recipients are entitled by law to receive, total 64 percent of U.S. federal spending, and that number is growing rapidly as our society ages. Besides these entitlements, other major budgetary components are defense, which always must come first, and interest on the national debt, which we have to pay. Those three things comprise all but 16 percent of federal outlays. To balance our budget, we simply must reform Social Security and Medicare, raise taxes, or reduce spending on everything else even more.*
*One estimate is that, to break even, all other spending would have to be cut 85 percent if entitlement payments and military spending are unchanged and taxes are not increased.
Sadly, “taking away Grandma’s Social Security” is how any suggested modification is described by fear-mongering politicians and reform opponents. Hence, as with anything big in Washington, fixing Social Security requires bipartisanship and consensus, which are in short supply.
Where the issue stands today: The first persons eligible for Social Security Income (“SSI”) and Medicare were born in 1900. Today, the average American lives 30 years longer than did those born 123 years ago. When these entitlement programs started, there were 42 employees paying in to support every 65-year-old retiree. Now there are between two and three.
With the trust fund for Social Security running out in 2033 or 2034, and the Medicare trust fund being depleted by 2031, something must be done, and very soon. As we said in our prior post, Social Security and Benefits Programs: Applying Principles to the Issues (August 3, 2021), those dates will come quickly.
If politicians remain paralyzed by the fear of being the one to bring up the issue, what they are deciding by implication is that all current and future benefits should just be cut significantly, automatically, and across-the-board. That is the opposite of “preserving” Social Security.
Proposed Resolutions
To resolve real problems, we need realism. Logic tells us that, “If something cannot go on forever, it will stop,” as economist Herbert Stein noted in 1986.
Principles involved: On this issue, the analysis primarily involves a common balance between the principles of protecting the vulnerable and limited government. In addition, the leadership principles of integrity and honesty come into play.
Solutions: Options include: (1) make future retirees wait longer to start receiving Social Security, so that all current recipients will continue their full benefits without reduction; (2) build up the trust fund now by forcing workers to pay in more than they currently do; (3) reduce the payouts to all future recipients across the board. When there is not enough money to go around, someone has to get less, wait longer, pay in more, or all of the above.*
*Another choice barely worth mentioning would be to use regular tax dollars to continue full SSI and Medicare payments after the trust funds are empty. That seems to be a recipe for an entire federal government to become much, much further in debt than the $31.4 trillion it already is.
By law, the third option above will happen automatically if Congress does not act before the trust funds vanish. Clearly, however, Option 3 lacks honesty and integrity, as it retracts promises made to current and future senior citizens who have relied on those promises when making retirement and financial decisions. Therefore, politicians who do nothing to solve the problem are the ones who should be accused of “cutting” Social Security for Grandma and all current seniors.
What Congress should do instead is reform the program now to ensure full payments in the future. The last major reform was in 1983, and Joe Biden himself, when he was a young senator, voted for it.
With SSI today, reform means, first, that we should raise the required contribution to cover all earned income (right now the obligations of both employers and employees to contribute stop when one’s annual earnings reach $162,000). This is a better way to build up the trust fund than increasing the percentage paid by all employees because, for example, the person who earns $50,000 per year is much more likely to notice a larger paycheck reduction than the person who earns $3 million per year.
Also, in phases, we should raise the full retirement age to 70 for those who still have years to prepare for that change (for example, everyone born after 1970), with those future recipients ineligible for early withdrawals until age 65 (currently it is 62.5).
Another helpful move would be to allow recipients to forgo all or part of their payment, giving them a tax deduction for the entitlement not taken. Generous, well-off Americans concerned with preserving Social Security for future generations are likely to do this.
In short, there are several principled, sensible solutions to this very real problem, and America needs principled, sensible politicians to lead on this issue.
Written by Quentin R. Wittrock, founder of Principle Based Politics.
Look for his posts each week, as this blog will explore and promote the idea of principle in politics, both as to individual elected leaders and our federal government as an institution.
Ted
Posted at 19:44h, 05 AprilLove the post! Agree on the sensible solutions listed above. There’s no easy or perfect answer, but our government just needs to get started with acknowledging that the problem exists and then actually doing something about it instead of blaming each other.
Angela Hermanson
Posted at 20:24h, 05 AprilI love the specific recommendations you made and analysis you did on this difficult topic. I learned a lot!