This is the second of a two-part series about Social Security. My previous column discussed the reasons why we are facing Social Security insolvency in 2032 and the resulting 22% benefit reduction. This column reviews the difficult choices Congress must make to remediate the problem.Â
In 2011, I attended a conference where Alan Greenspan was a featured speaker.
Back then he said Congress has made a lot of promises to the American people that it will not be able to keep. He speculated that by 2020, America would have to face up to those problems.
That decade has come and gone and we have yet to face those problems because the solutions are all painful. Greenspan did not consider the implications of labor-replacing technology when he made those remarks because such technology did not exist at that time.
So far, Congress has not come up with much of a solution.
Congress loves to appoint blue ribbon committees to conceive solutions that are largely ignored because they are too painful to implement.
Eventually, Congress must act because the continued underfunding will result in an eventual exponential explosion of our unfunded Social Security debt.
In 2018, the board of trustees of the Federal Old-Age and Survivors Insurance issued a report on the Social Security Fund’s solvency. In 2017, the fund had a surplus with assets exceeding unfunded obligations by approximately $3 trillion.
The surplus was projected to be depleted somewhere between 2032 and 2034.
The pandemic accelerated that date to 2032. Fifteen years later, in 2047, the claims payable are expected to exceed assets by approximately $3.5 trillion.
There are two ways to ensure the Social Security Fund’s solvency: increase payroll taxes or reduce benefits.
Neither is politically appetizing. But difficult times require making difficult choices.
There have been several proposals on the revenue side that face fierce opposition — generally from younger Americans who believe they are already paying for Social Security benefits that they will never receive:
• Remove or increase the salary cap on earned income, which currently is $184,500, which means that high-income people will pay more for nothing in return. This increase will be borne primarily by upper-middle-class households.
• Broaden the tax base by including all employee benefits and by including government workers who are currently not part of the Social Security system.
• Make all benefits received taxable. Currently, social security is taxable only to those with income above certain levels. This would potentially subject lower-income individuals to tax.
• Expand the workforce by encouraging immigration, which might prove infeasible if technology replaces jobs.
• One proposal that has yet to be considered is to impose a Social Security tax on labor-replacing technology.
In terms of benefit cuts, older Americans generally do not support the following changes:
• Modify or eliminate the annual Cost of Living Adjustments (COLA). COLA increases are based on the Consumer Price Index, which was already modified to calculate lower rates of inflation in the 1990s. Without COLA increases, beneficiaries who rely on Social Security to pay living expenses will not be protected against inflation, which may lead to greater homelessness and other issues.
• Reduce the COLA increases for those Social Security recipients with higher income.
• Increase the retirement age. This might force people to work longer, which would shorten the period during which they receive benefits and reduce the amounts they receive during their lifetimes.
• Change actuarial assumptions. Many of the actuarial assumptions currently used are based on actuarial studies conducted decades ago when life expectancies were shorter. Updating the mortality tables to make them more current would reduce the benefits paid over a recipient’s lifetime.
Because each of these proposals affect everyone differently, somebody will be disproportionately affected by each of these proposals and will cry foul if any proposal is enacted.
Consequently, the political hurdles to implementing any change are enormous.
Clearly, devising long-term solutions will require adroit political skills, which have eluded Congress to date. Perhaps the fact that everyone will pay if nothing is done will finally motivate Congress to act.
Many unpopular tax provisions, typically tax increases, are phased in to lessen the shock associated with the change and to allow taxpayers ample time to make adjustments.
Perhaps that might be a potential solution to overcoming the political obstacles facing Social Security reform if Congress acts promptly. Regrettably, if Congress waits until 2032, there will be no time to phase in the reform provisions.
The time for action is rapidly approaching and politicians should be getting nervous about this issue. After all, senators elected this year will serve terms that expire in 2032.
Jim de Bree is a Valencia resident.
