This week on Facing the Future, we celebrate the 88th birthday of Social Security by taking a look back at the history of the vital benefit program for seniors and the disabled, and taking a look at its future. To do that, we were joined by former public trustee of Social Security Dr. Charles Blahous, who is now a senior research strategist at the Mercatus Center at George Mason University and a visiting fellow at the Hoover Institution. We were also joined by Concord Coalition chief economist Steve Robinson, who in the past worked at the Social Security Administration and has just published the first of three issue briefs looking at the history of the Social Security Trust Funds. Concord policy director Tori Gorman also joined us for the conversation.
Dr. Blahous began by reminding us how vital Social Security is to the millions of beneficiaries it serves, and why it has done for the most part what it was designed to do.
“Social Security is uniquely successful I think as a political achievement, in the sense that it provides substantial and nearly universal income support to tens of millions of Americans, and it manages to do it in a way that doesn’t incite popular revolt over the financing,” said Blahous. “Social Security provides benefits that are uniquely reliable and secure and predictable. Almost every other program the federal government runs, there’s almost a constant renegotiation of the terms. What are the benefit levels going to be, who is eligible, should there be a means test, should there be a work requirement?”
Blahous continued, “Social Security has escaped that for a very specific reason; it’s because in a more typical income support program, you have one set of people who are paying for the benefits because you’re funding out of the general revenues of the Treasury, so they’re paying for it through their income taxes, and not everyone is paying those income taxes. And you have another set of people who are getting the benefits without necessarily having paid anything to fund the programs. So you have this constant collision of interests. But Social Security is different. We’re all paying into it for the most part. The beneficiaries and the funders are the same people. And there is a connection between the benefits you are eligible for and the contributions that you make.”
Still, Social Security as we know it and as generations of Americans have come to rely on is under an existential threat, driven by the demographic imbalance of workers to retirees. It’s a combination of the baby boom generation moving into retirement en masse, with a long trend of declining American fertility rates – resulting in many more retiree beneficiaries and not enough workers to contribute payroll taxes to sustain the program. The billions of dollars in Social Security’s annual cash shortfalls are among the primary drivers of our projected long-term debt crisis. According to the program’s trustees, the Social Security trust funds will be depleted by 2034 and if nothing is done to change that reality, beneficiaries could see reductions of up to 20% in their monthly checks. Blahous says Social Security is in much worse shape than it was the last time we got close to insolvency in the early 1980s.
“Back in 1983 when they rescued the program from insolvency and made some changes to taxes, benefits, and eligibility ages and kept it going, everything was very different,” said Blahous. “Annual income and outflow were pretty close together and lawmakers just needed to come together and close that gap. But you had the baby boomers in the workforce for the next couple of decades so you had these big surpluses being built up. But then the baby boomers hit the retirement rolls and the program went into deficit starting in 2010, and those deficits have been getting bigger and bigger, and the program is drawing down that trust fund that was built up when the baby boomers were in the workforce. When that trust fund is finally on the verge of running out, the annual shortfalls are going to be so large, there is likely no plausible, reasonable likelihood that lawmakers could actually fill that gap on a moment’s notice.”
Blahous says every year we don’t take action to shore up the solvency of the Social Security Trust Funds, we approach the point of no return where no matter what we do, there is no way we can operate or maintain the same type of benefit system we have always had. So – what do we do if we want to preserve Social Security for future generations? Solutions tend to fall into a couple of general buckets: raising the eligibility age of collecting Social Security benefits, and raising the cap on income subject to payroll taxes for the program from its current annual level of $160,200.
“Eligibility age changes are among the single best things we can do for the program,” said Blahous. “I think of Social Security and retirement policy in general as having three main factors: One is the level of contributions you have to make when you’re working, one is the annual income security you can get in retirement, and the third is the number of years over which those payments have to be stretched. And that third factor is really important. If you have to stretch those payments out for more and more years as we live longer, you inevitably get a less and less favorable relationship between worker contributions and annual income security. Either workers are hit with really onerous tax burdens, or the amount of annual income security you have in retirement isn’t sufficient. The only way around one or the other is to take a look at the number of years over which you’re stretching those payments. Even just a change of a year or two or just a few months can do as much for your income security over the course of your retirement as saving an additional percentage or two of your earnings for your entire working career.”
Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join us as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.