Expert Romina Boccia on how to save Social Security: Recently, Social Security – the federal government’s largest program – turned 87 years old. The world has changed, but this massive federal program has not kept up with the times. Change is too late.
When President Franklin D. Roosevelt signed the program on August 14, 1935, he called it “a law that will provide the average citizen and his family with some measure of protection…from poverty-stricken old age.” From a modest income support program targeting individuals over the age of life expectancy, Social Security now redistributes more than $1 trillion a year from working Americans to retirees, despite the much greater wealth that retirees possess. And the program’s annual spending is expected to double to nearly $2 trillion over the next decade.
President Joe Biden. Image credit: Creative Commons.
It should come as no surprise to anyone who pays the slightest attention to how government works that even modestly conceived programs tend to swell well beyond their intended purpose. And as one of the longest-running federal programs, the program has had plenty of time to transform from an elderly poverty program into a politically easy right. Congress should not delay making the following common sense changes:
Raise the age of eligibility
Over the lifetime of Social Security, life expectancy at birth in the United States has increased by nearly 20 years. Yet Social Security’s full retirement age has been raised by just two years (from 65 to 67 – to be fully implemented by 2027), and the early retirement age hasn’t changed at all – despite significant improvements in health and longevity. By encouraging individuals to retire earlier than they otherwise would, Social Security reduces employment rates, which suppresses growth.
Congress should raise the early and full Social Security ages by 3 years each (to 65 and 70) and index both to an increase in longevity. These are both minor and common sense reforms that preserve the original goals of the social security system and reduce the burden on current and future taxpayers.
Targeting income support for the elderly to people with limited resources
Social Security provides income support to older Americans regardless of need. This makes Social Security a program for rights, rather than a poverty program for the elderly. The median wealth of working Americans ages 35-44 was $91,300 in 2019, based on the Fed’s latest consumer finance survey. Meanwhile, the median wealth of people over 65 was nearly three times higher. To the extent that the government provides income subsidies to retirees, it should target those retirees with limited means to support themselves.
Congress must test Social Security and return to the program’s goal of protecting against poverty in old age.
Reduce the programs that strain the economy and the budget
Contrary to popular belief, the Social Security trust fund is a liability, not an asset.
The $2.8 trillion in IOUs earmarked for the Social Security trust fund is part of the $30.7 trillion gross national debt (the so-called intergovernmental debt). Congress immediately spent all of the surpluses collected by the IRS (including payroll taxes on employee wages) and deferred the cost of paying for Social Security to future taxpayers. Intergovernmental debt is quite a misnomer in this context. We are really talking about intergenerational debt, as it is current and future taxpayers who want to pay current government spending, including any debt that government agencies have incurred between themselves (such as spending the taxes intended for Social Security on other government programs).
The trust fund is a legal accounting entity that owns no real economic assets. It only matters because there is a legal provision that Social Security can continue to have cash flow shortfalls as long as the trust fund’s accounting mechanism tracks a positive value.
It makes sense, then, to disregard the so-called trust fund and the interest it accrues, and only consider current Social Security inflows and outflows to understand the program’s impact on the economy and federal budget. According to those accounts, Social Security spent $1001.9 billion in 2021, while collecting $875.4 billion ($838.2 billion in payroll taxes and $37.2 billion in benefits taxes), for a government deficit. Social Security in 2021 of $126.5 billion. By covering this Social Security cash flow deficit, the US government debt was added.
Congress should reduce Social Security spending by making the programmatic reforms specified above, as well as other immediate adjustments, such as indexing the program’s cost-of-living adjustments based on the chained CPI.
Social security card. Image credit: Creative Commons.
This program makes up the bulk of current federal spending and will continue to grow as more eligible individuals retire and take longer to retire. Congress must grapple with the way Social Security benefits are structured and reform the program if it is to achieve its original intent without unnecessarily undermining the wealth and growth of workers in the economy. The longer the Congressional delays, the more expensive the adjustments lawmakers will have to make, and the less time and resources American workers will have to prepare, save and invest to best meet their own needs. , now and in their old age.
Expert Biography: Romina Boccia is Director of Budget and Entitlement Policy at the Cato Institute, where she specializes in federal spending, budget process, economic impact of rising debt, and social security and health care reform. Boccia was previously director of the Grover M. Hermann Center for the Federal Budget at the Heritage Foundation, where she was the principal author of the organization’s flagship budget plan: The Blueprint for Balance. She has also contributed chapters to the book: A Fiscal Cliff: New Perspectives on the US Federal Debt Crisis and the peer-reviewed publication: Homo Oeconomicus: Journal of Behavioral and Institutional Economics. This first appeared on CATO.