03 Aug Social Security and Benefits Programs: Applying Principles to the Issues
If you happen to be 38 years of age, half the people in the United States are older than you, and half the people are younger. You 38-year-olds out there are the median. You are in a prime stage of life, too. Singer Carrie Underwood and actress Ann Hathaway are 38. Ilhan Omar, age 38, is a Minnesota congresswoman. Quarterback Aaron Rodgers is about to turn 38. Prince William just turned 39. Many other celebrities are in that same age range.
And, oh, if you are 38 and an average American, we hate to be the one to tell you, but the trust fund for Social Security payments is on pace to run out when you turn 50. For many non-celebrities, that might be a big deal.
This post will explore the looming Social Security shortfall, what can be done to prevent it from occurring, and how our principles apply generally to reform of federal benefits programs from Social Security to Medicare and others.
“Old Age” Isn’t What it Used to Be
When you are retired and within a year of being eligible to start receiving early Social Security benefits, like this blogger is, realizing the actual name of the federal program we are talking about is a bit startling. The program goes by the official acronym OASDI, and that “OA” stands for Old Age, as in the Old Age, Survivors, and Disability Income program. Wow, that came quickly.
Anyway, the real problem with OASDI is that, starting in 2021, the annual payouts exceed the money coming into the trust fund, a trend that will accelerate as the Baby Boomers continue to retire and start drawing Social Security. Estimates are that the fund will run out of cash in about 12 years.
The political issue this presents is how to reform Social Security (as we prefer to call it) so future retirees can receive their full payments. We will address that issue with our principle-based approach.
On this issue, the analysis primarily involves a common balance between the governmental principles of protecting the vulnerable and limited government. To be blunt, no government is so unlimited that it can be all things to all people—even to all potentially vulnerable people—so tough decisions need to be made about which people receive how much protection. In addition, the leadership principles of integrity and honesty also come into play.
To preserve the Social Security trust fund, balancing options include: (1) keeping the categories of eligible recipients the same as now, but paying a lower amount to each current and future eligible person; (2) leaving payout amounts untouched to those who currently receive them, but, in the future, making certain categories (such as people with high lifetime incomes) ineligible to receive a full payment, if they receive anything at all; and (3) making the trust fund bigger by increasing payroll tax receipts from workers and/or employers. There are many variations of each option.
This is where leadership principles of integrity and honesty tip the balance. Integrity demands that leaders do the right thing, even if some voters may be upset. Honesty demands that promises are kept. These two principles combine, first, to require that our leaders make the difficult decisions that must be made to preserve the trust fund so that existing recipients continue to receive everything they have been receiving. Specifically, in order for current and future recipients to receive full monthly payments when they reach their full retirement age, our leaders should slightly, slowly, raise the age at which future recipients can begin drawing retirement benefits from the current age of 62, while also slightly reducing the payments to those in the future who elect to start drawing before reaching the full retirement age (which today is 67).
A third difficult, but necessary, step would be to raise more revenue by increasing the maximum taxable wage base.* If these three steps fail to close the gap, only then should Congress consider excluding the wealthiest Americans from receiving Social Security payments or subjecting Social Security retirement payments to income tax (which would affect only those with high retirement incomes).
*Currently, FICA payroll taxes are limited to the first $142,800 of income. Gradually increasing or even eliminating this “cap” would bring more money into the trust fund. This is a better option than increasing the FICA tax rate, which today is 6.2 percent for the employee and another 6.2 percent by the employer. (Self-employed people pay the full 12.4 percent themselves.)
Just as “OA” can sneak up on us, the trust fund supporting Social Security will be depleted before we realize it. Changes to solve the problem will need to be increasingly abrupt and drastic the closer we get to the trust fund being completely broke. Therefore, the time for the principles of integrity and honesty to kick in is now. Congress must work together with the administration to keep the government’s promises to people who will be depending on full retirement payments in the future.
Honestly, Please Just Solve the Problem, Now
Medicare presents a similar problem. It, too, has a trust fund, and, not surprisingly, that trust fund also is running low on money. For Medicare, it appears the funds will be completely gone by 2024. As with Social Security, choices include increasing Medicare taxes, not providing for health care for all of our senior citizens (those 65+), or paying less to medical providers.*
*Estimates are that current tax revenues would allow payment of seniors’ medical bills at around 83 cents on the dollar if there is no trust fund money to close the gap.
We will not go through an extensive analysis with Medicare, because it is the same as with Social Security: our elected officials must come together to fix this problem, too, through bipartisan action. Integrity and honesty will allow leaders to tackle these issues head on. The American people can handle the truth. We can understand that income must equal or exceed payments, and we insist that commitments are fulfilled and bills paid.
No attention should be paid to who is to blame for these shortfalls. No effort should be made to exploit the problems to gain political leverage. Medicare and Social Security both should be shored up, in a principled way. The sooner, the better.
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In our next post, we will continue on the topic of federal benefits programs, with the analysis shifting to what it means to truly “benefit” the recipients.
Written by Quentin R. Wittrock, founder of Principle Based Politics.
Look for his posts twice 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.
Future political issues to be analyzed under our principle-based method include: taxation, federal deficits and debt, health care, and foreign relations.