How Do You Solve a Problem Like Social Security?

Social Security is generally considered politically untouchable, but lawmakers have been fretting about its future for months. In March, the Treasury Department reported that the trust funds for the program, which currently provides benefits for 67 million Americans, will be depleted in 2034.This does not mean that Social Security will be bankrupt; around 80 percent of benefits will be payable through the combined funds of disability insurance and old age and survivors’ insurance. Still, the projection comes one year earlier than last year’s prediction, raising alarm bells about the program’s future.This will certainly be a topic of concern for Martin O’Malley, the former Maryland governor who was nominated by President Joe Biden to become commissioner of the Social Security Administration. The Senate Finance Committee approved O’Malley’s nomination on a bipartisan basis on Tuesday, although it’s uncertain when he will receive a floor vote.Laura Haltzel, a senior fellow with the Century Foundation, highlighted the demographic shift that is making Social Security’s revenue stream unsustainable: The retirement-age population is growing while the national birth rate is declining. Over time, in other words, fewer workers will finance the program as more retirees are relying upon it.“The problem is that you cannot pivot on a dime and create a workforce today,” Haltzel said. With only 10 years until 2034, raising the retirement age—one of the common ideas for solving the solvency problem—is an insufficient solution, Haltzel said. The issue is not merely that the workforce cannot accommodate an aging population, said Andrew Biggs, a senior fellow at the American Enterprise Institute. The problem is also political; once granted, benefits are difficult to revoke. Biggs sourced that dynamic to 1977, when Congress changed the formula for determining Social Security benefits so that they automatically increased, indexed to wage growth—a decision, he said, that “locked in the effects of demographics.”“Congress loves to promise things. It hates to draw back on promises,” Biggs said. “They were setting in place a massive political problem.” Republicans have bristled at Democratic allegations that they wish to cut Social Security—a talking point precipitated by GOP Senator Rick Scott’s proposal to slash the program. GOP lawmakers, perhaps predictably, blame President Joe Biden for claiming that Republicans support cutting Social Security benefits, in his State of the Union address earlier this year.“It’s too easy to play a political football with,” grumbled Republican Senator Bill Cassidy, who has proposed, along with Senator Angus King, an independent who caucuses with Democrats, an independent investment fund to keep Social Security solvent. Another Republican, Senator Mitt Romney, told me that it’s “so easy in this country to demagogue one’s opposition, and to scare seniors into thinking their benefits will be cut.”But the issue of Social Security is particularly thorny for Republicans, as older Americans skew right. Cutting benefits for currently retired or soon-to-retire Americans is politically impossible. “They do want to address deficits and debt, and yet a huge driver of these deficits and debt is important to their own political base now,” Biggs said about the dilemma for Republican lawmakers.One proposal some Republicans have floated to increase Social Security revenue is to means-test the program, so that wealthier Americans don’t receive benefits they may not need. “I think the average American who has saved money, has led a blessed life, is willing to take some off of the benefit,” GOP Senator Thom Tillis told me. In theory, this is the kind of idea that seems like it would appeal to Democrats. A major tenet of the modern Democratic Party is that the wealthiest Americans should pay their fair share; if they do not need benefits, why should they receive the same amount in Social Security as lower-income Americans? Tillis continued that he mentioned means-testing “because I knew that that would be something on their list.” However, such a change would account for only a small fraction of revenue raised and could potentially hurt those retired and soon-to-retire Americans that all politicians are desperate to protect. Moreover, Democrats are generally loath to cut any benefits—even for wealthier Americans.Haltzel explained that means-testing Social Security would functionally replicate a program that already exists—Supplemental Security Income, or SSI, which is targeted for low-income retired and disabled Americans—and would undermine the initial purpose of the program. “The whole reason that [Social Security] was structured the way it was, was to ensure that every American had a stake in the program,” said Haltzel. Social safety net programs like SSI are often stigmatized and may not receive sufficient funds to help all those in need. Haltzel worried that if Social Security transformed into a welfare program, i

Dec 1, 2023 - 16:36

How Do You Solve a Problem Like Social Security?

Social Security is generally considered politically untouchable, but lawmakers have been fretting about its future for months. In March, the Treasury Department reported that the trust funds for the program, which currently provides benefits for 67 million Americans, will be depleted in 2034.

This does not mean that Social Security will be bankrupt; around 80 percent of benefits will be payable through the combined funds of disability insurance and old age and survivors’ insurance. Still, the projection comes one year earlier than last year’s prediction, raising alarm bells about the program’s future.

This will certainly be a topic of concern for Martin O’Malley, the former Maryland governor who was nominated by President Joe Biden to become commissioner of the Social Security Administration. The Senate Finance Committee approved O’Malley’s nomination on a bipartisan basis on Tuesday, although it’s uncertain when he will receive a floor vote.

Laura Haltzel, a senior fellow with the Century Foundation, highlighted the demographic shift that is making Social Security’s revenue stream unsustainable: The retirement-age population is growing while the national birth rate is declining. Over time, in other words, fewer workers will finance the program as more retirees are relying upon it.

“The problem is that you cannot pivot on a dime and create a workforce today,” Haltzel said. With only 10 years until 2034, raising the retirement age—one of the common ideas for solving the solvency problem—is an insufficient solution, Haltzel said.

The issue is not merely that the workforce cannot accommodate an aging population, said Andrew Biggs, a senior fellow at the American Enterprise Institute. The problem is also political; once granted, benefits are difficult to revoke. Biggs sourced that dynamic to 1977, when Congress changed the formula for determining Social Security benefits so that they automatically increased, indexed to wage growth—a decision, he said, that “locked in the effects of demographics.”

“Congress loves to promise things. It hates to draw back on promises,” Biggs said. “They were setting in place a massive political problem.”

Republicans have bristled at Democratic allegations that they wish to cut Social Security—a talking point precipitated by GOP Senator Rick Scott’s proposal to slash the program. GOP lawmakers, perhaps predictably, blame President Joe Biden for claiming that Republicans support cutting Social Security benefits, in his State of the Union address earlier this year.

“It’s too easy to play a political football with,” grumbled Republican Senator Bill Cassidy, who has proposed, along with Senator Angus King, an independent who caucuses with Democrats, an independent investment fund to keep Social Security solvent. Another Republican, Senator Mitt Romney, told me that it’s “so easy in this country to demagogue one’s opposition, and to scare seniors into thinking their benefits will be cut.”

But the issue of Social Security is particularly thorny for Republicans, as older Americans skew right. Cutting benefits for currently retired or soon-to-retire Americans is politically impossible. “They do want to address deficits and debt, and yet a huge driver of these deficits and debt is important to their own political base now,” Biggs said about the dilemma for Republican lawmakers.

One proposal some Republicans have floated to increase Social Security revenue is to means-test the program, so that wealthier Americans don’t receive benefits they may not need. “I think the average American who has saved money, has led a blessed life, is willing to take some off of the benefit,” GOP Senator Thom Tillis told me.

In theory, this is the kind of idea that seems like it would appeal to Democrats. A major tenet of the modern Democratic Party is that the wealthiest Americans should pay their fair share; if they do not need benefits, why should they receive the same amount in Social Security as lower-income Americans? Tillis continued that he mentioned means-testing “because I knew that that would be something on their list.” However, such a change would account for only a small fraction of revenue raised and could potentially hurt those retired and soon-to-retire Americans that all politicians are desperate to protect. Moreover, Democrats are generally loath to cut any benefits—even for wealthier Americans.

Haltzel explained that means-testing Social Security would functionally replicate a program that already exists—Supplemental Security Income, or SSI, which is targeted for low-income retired and disabled Americans—and would undermine the initial purpose of the program.

“The whole reason that [Social Security] was structured the way it was, was to ensure that every American had a stake in the program,” said Haltzel. Social safety net programs like SSI are often stigmatized and may not receive sufficient funds to help all those in need. Haltzel worried that if Social Security transformed into a welfare program, it would be means-tested to the point where it cuts out those who would benefit from the program.

Vibe check: The commission question

A major priority for new House Speaker Mike Johnson is establishing a so-called “fiscal commission”: a panel to address the ballooning deficit and interest payments on American debt, as well as Social Security and Medicare’s impending solvency issues. On Wednesday, the House Budget Committee held a hearing on several bipartisan bills to create a fiscal commission.

“We need an outside group of experts to help us learn what the absolute truth is,” said GOP Representative Steve Womack, a co-sponsor of one of the pieces of legislation.

Fiscal commissions have a mixed track record: The 1983 Greenspan Commission helped Congress pursue a path to keeping Social Security solvent—although it fell short of its 75-year goal—but the 2010 Simpson-Bowles commission did little more than raise public awareness about the growing deficit.

Representative Scott Peters, the Democratic co-sponsor of a bill that would create a bipartisan, bicameral commission, including outside experts, told me ahead of the hearing that it was difficult for one party to solve the problem. For example, while Democratic Representative John Larson has introduced a bill to keep Social Security funded, that measure did not make it through the House Ways and Means Committee, even when Democrats controlled both houses of Congress. Not touching Social Security is a “cruel lie,” argued Peters.

“If you want to cut Social Security, what you do is nothing,” Peters said. “But if you want to save Social Security, if you want to save benefits, the sooner we do [take action], the better chance we’ll have.”

But Representative Brendan Boyle, the ranking Democrat on the committee, noted during the hearing that the conclusions of a fiscal commission—particularly regarding Social Security—will eventually need to be acted upon by a potentially recalcitrant Congress.

“Ultimately, individuals will have to put up a vote either saying, ‘Yes, this is how we’re going to raise more revenue,’ or ‘Yes, this is how we’re going to enact cuts,’” said Boyle.

Indeed, the problem with receiving a recommendation from a commission is the actual follow-through, which is why several members who have sponsored legislation to create such a panel call for an up-or-down vote on the eventual recommendations.

“Using a commission is the only way that you can actually get something through a filibuster, and also whoever’s in the majority in the House,” said GOP Representative Blake Moore, another member of the House Budget Committee.

Many Democrats support either eliminating Social Security’s cap on taxable wages, expanding the types of compensation subject to Social Security payroll taxes—fringe benefits like health insurance, for example—or increasing payroll taxes. “The problem has been that, over time, the amount of revenue that is subject to [Social Security payroll] tax has been declining, partially because of a disparity in the way wages have grown,” Haltzel told me.

Democratic Representative Jim McGovern, who testified at the hearing, worried that Republicans’ promise to not raise taxes would necessarily lead to cuts in Social Security. “It’s not just about getting numbers aligned on the balance sheet, it’s about what our values are,” McGovern said. “If you’ve signed a pledge, ‘No new taxes,’ then revenues are not on the table.”

Congress is not exactly known for its promptness in tackling issues. If Social Security will no longer be solvent as of 2034, it’s easy to see lawmakers not taking any action until the waning months of 2033. Still, Romney, who has co-sponsored another bipartisan bill in the Senate to create a fiscal commission, argued before the House Budget Committee that, regardless of timeline, inaction was not an option.

“If we don’t fix this problem, we’re going to be known as the worst generation,” Romney said.