In 2010, the Social Security Trustees Report said Social Security would be able to fulfill all current obligations until 2036. In 2011, that estimate was bumped to 2035, and this year it was changed to 2033. Clearly, the program must be reformed, yet many Washington politicians think like Senate Majority Leader Harry Reid (D-NV), who said in January 2011 that “Social Security is a program that works and is fully funded for the next 40 years” and that “the arithmetic on Social Security works.”
Any politician who thinks Social Security “works” for the American people is either dishonest or not paying attention to the facts. This was starkly outlined recently by Charles Blahous, a trustee for Medicare and Social Security. In a paper published through George Mason University’s Mercatus Center, Blahous explained the bleak situation Social Security finds itself in. From the paper:
Social Security’s future, at least in the form it has existed dating back to FDR, is now greatly imperiled. The last few years of legislative neglect … have drastically harmed the program’s future financial prospects. Individuals now planning their financial futures … should be pricing in a substantial risk that the federal government will not be able to maintain Social Security as a self-financing, stand-alone program over the long term. If Social Security financing corrections are not enacted in 2013, or at the very latest by 2015, it becomes fairly likely that they will not be enacted at all.
Had across-the-board price-indexing been enacted in 2005, it could have kept Social Security fully solvent, left those over 55 untouched, and generated additional funds to provide for faster benefit growth on the low-income end. Enacted last year, however, such across-the-board price-indexing would no longer be enough; costs would be substantially higher and the trust funds would be depleted in 2040 unless further measures were taken. And if re-scored under 2012 assumptions, this proposal would fare still worse.
What is to be done? Blahous notes that compromise is absolutely necessary (emphasis added):
A solution requires substantial compromise by one or both sides. If one person (or a unified political party) commanded total political power and was willing to use it, they could impose their preferred solution on those who disagree. The last such opportunity was probably 2009-10 when Democrats controlled both chambers of Congress and the White House. … Today no one expects that either party will single-handedly control the White House, the House, and 60 votes in the Senate within the next few years. Thus if Social Security finances are to be repaired, someone must dramatically compromise. … Unfortunately … we are already long past the point where there is precedent for a compromise of this magnitude.
Blahous also notes that tax increases alone will not solve the problem, despite what Democrats in Washington often say:
The efficacy of tax-increase solutions is also fading with delay. Advocates on the left sometimes argue to increase the amount of Social Security wages subject to the payroll tax. The most extreme version of this proposal would be to raise the amount of wages subject to the full 12.4% payroll tax — $110,100 today – up to infinity. Yet even this drastic measure would now fail to keep Social Security in long-term balance as well.
There are two parties to blame for this financial situation: first, obviously, are the politicians who dare not touch the “third rail” of politics. However, the American people have also failed to hold their politicians accountable for failing to make Social Security fully solvent. I hope that the fiscal conservatives in the Tea Party can revive interest in the shared sacrifice necessary to make sure that middle-aged and younger Americans receive anywhere close to the level of benefits they have been promised.
What are the consequences of this lack of political will by the people and Washington? Here are several:
- The Social Security Trust Fund will start going bankrupt in 2013.
- Several recent estimates of the life of Social Security have overestimated the length of time until full Trust Fund bankruptcy, meaning that the fund could easily run out of money prior to 2033.
- Blahous’ June 21 testimony to the House Ways & Means Committee’s Subcommittee on Social Security stated that the Social Security Disability Fund will need an annual $30-billion cut in 2016 if no changes are made.
- Blahous also said the Social Security Trust Fund as a total would require an annual cut of over $600 billion annually by 2033 — the 2012 equivalent of $367 billion every year.
- Finally, Social Security was started and sold to the American people as a self-funding program. In an exchange with Representative Kenny Marchant (R-TX) during his testimony, Blahous noted that if no changes are made and no cuts to Social Security take place in 2033, the program will have to take money from the general fund of the Treasury, meaning the program will never again be self-funded.
Unfortunately, the lack of political courage to reform Social Security is a bipartisan phenomenon. A number of Senate Republicans joined with Senate Democrats to stop a partial privatization effort in 2005, and as Blahous noted, no reformation of So
cial Security was found in 2009 or 2010. Additionally, the House Republican budget proposal for 2013 — which famously reforms Medicare — fails to propose even the most basic reforms to Social Security.
There isn’t much time left to make meaningful reforms to Social Security that won’t financially devastate a generation or two of Americans. And as Senator Rand Paul (R-KY) noted in an interview with me not long ago, despite what many in Washington say, reforms are not a matter of compromise. They are a simply matter of fiscal necessity.