Social Security is America’s largest government program and arguably the most important one given that it serves as a lifeline for tens of millions of Americans.
By now, most voters have heard that vital lifeline will be at risk in the coming years. Unfortunately, too many also have heard that the country has dealt with this issue before and that we need only to follow the example of the past to put the program on stable footing.
This is a false and dangerous narrative, one that fuels the complacency that fosters continued inaction in Congress.
As explained in the latest Trustees Report, absent action by Congress the Social Security Trust Fund should able to pay full benefits for about 14 years, or roughly the life expectancy of someone turning 73 today. Should Congress fail to take action on the program’s finances, these people will be more vulnerable and dependent on Social Security at the very moment when the dramatic benefit cuts materialize.
Keep in mind that this outlook isn’t a guarantee. It is actually a stern warning about what might happen even in a healthy and growing economy. In response, policy experts and politicians argue the unimaginable: Congress needs to grow up and work together as it did in 1983.
The analytical comparison of situation today and that of 1983 represents an incomplete view of Social Security’s condition, one shorn of crucial historical and financial context. The crisis in 1983 arose from a different cause and augured smaller consequences over a different duration. Moreover, Congress in 1983 had a wide range of tools geared to hold off a systemic breakdown.
The painful truth is that the comparison is at best wishful thinking and at worst a fool’s errand to distract voters from the drastic consequences of further delay.
“ The same workers who saved Social Security in 1983 will have to save it again in 2021. ”
Believe it or not, Social Security presented a relatively small economic problem in 1983 despite all of wistful memories about political leadership and bipartisan efforts. At the time, the program only faced a small and temporary gap in cash flow caused by transient unfavorable economic results; a combination of sluggish wage growth and high inflation generated a short-term imbalance where the program would face a brief period of a shallow insolvency before returning to the black as the last round of Boomers joined the workforce.
In contrast, the current situation threatens to deliver large reductions that grow into eternity driven by permanent structural forces: the aging of our population and the decline in fertility rates since the peak of the baby boom. These are foundational challenges, magnified by Congressional inaction over decades. Combined, the actuaries at the Social Security Administration expect the red ink flows deeper and redder — forever.
Another distinction between the two periods is that Congress no longer has the range of remedies with which to deal with the imbalances. Four decades ago, it was possible to phase changes into the system in such a way that the majority of voters were only slightly affected. The actual legislation did not change the scheduled Social Security tax rate of 12.4%, and largely maintained the retirement age for those 30 and older.
The hard truth is the bipartisan accord that we laud today was little more than an agreement that our kids would work more and get less.
These legislative remedies for the most part are still in process. Two changes account for the bulk of the 1983 fix: advancing the retirement age by two years and taxing some benefits. The normal retirement age does not reach 67 until next year, the savings from which are expected to dribble in over the next three decades. Revenue from the taxation of benefits is projected to rise at 9% per year, driven by more and more seniors reaching a tax trigger that is not adjusted for inflation. Combined, workers now approaching retirement already face substantial benefit cuts vs. their predecessors.
That 1983 strategy does not offer the solution to today’s problem. In fact, it presents a major obstacle to policy makers who wish to consider alternatives.
Keep in mind that any benefit reductions we consider today will almost certainly have to be applied to the people who absorbed the brunt of the changes made in 1983. As a consequence, the 1983-redux idea implies that the same workers who saved Social Security in 1983 will have to save it again in 2021.
There is no denying that Social Security was in a crisis situation in 1983, one that required powerful people to compromise with respect to their strongly held policy differences. As noble as their actions were, their success provides little meaningful insight into the far greater challenges that the program faces today. It was a different problem in a different time when more gradual change was possible.
The hard truth for voters who believe that Congress will step in at the last minute and produce a painless solution is you are waiting for Godot. Postponing corrective action not only threatens future of current workers; it undermines the retirement security of today’s seniors as well. We are the people over whom so many hands have been wrung.
Brenton Smith writes about Social Security.