Expert Romina Boccia on how to save Social Security: Just recently, Social Security – the federal government’s largest program – turned 87 years old. The world has changed, but this massive federal program has not kept up with the times. Change is late.
When President Franklin D. Roosevelt signed the program into law on August 14, 1935, he called it “a law which will afford some measure of protection to the average citizen and his family…against old age ravaged by poverty.” From a modest income support program, targeting people who were living past the age of life expectancy, Social Security now redistributes more than $1 trillion a year from working Americans to retirees, despite the much greater wealth held by retirees. And the program’s annual spending is expected to double to nearly $2 trillion over the next decade.
It will come as no surprise to anyone who pays the slightest attention to the workings of government that even modestly designed programs tend to bloat well beyond their intended purpose. And as one of the longest-running federal programs, the program has had plenty of time to transform itself from an old-age poverty program into a politically practical entitlement. Congress should be quick to make the following common-sense changes:
Increase age of eligibility
Over the lifetime of Social Security, life expectancy at birth in the United States has increased by nearly 20 years. Yet the full Social Security retirement age has only increased by two years (from 65 to 67 – to be fully implemented by 2027), and the early retirement age didn’t budge at all – despite significant improvements in health and lifespan. By encouraging people to retire earlier than they otherwise would, social security reduces labor force participation, which hampers growth.
Congress should raise the ages of early and full Social Security eligibility by 3 years each (to ages 65 and 70) and index both to increased longevity. These are both small, common-sense reforms that preserve the original objectives of the social security system and reduce its burden on current and future taxpayers.
Focus old-age income support on those with limited means
Social Security provides income assistance to older Americans regardless of their needs. This makes Social Security a rights program, rather than an old-age poverty program. The median net worth of American workers aged 35 to 44 was $91,300 in 2019, according to the Fed’s latest survey of consumer finances. Meanwhile, the median net worth of people aged 65 and over was nearly three times higher. To the extent that the government provides income subsidies to retirees, it should focus them on retirees with limited means to support themselves.
Congress should assess Social Security resources, returning to the stated purpose of the old-age poverty protection program.
Reduce the burden of programs on the economy and the budget
Contrary to popular opinion, the Social Security Trust Fund is a liability, not an asset.
The $2.8 trillion in IOUs for the Social Security Trust Fund are part of the $30.7 trillion gross national debt (known as the intergovernmental debt). Congress immediately spent all surpluses collected by the IRS (including payroll taxes on workers’ wages) and deferred the cost of paying Social Security to future taxpayers. Intergovernmental debt is completely inappropriate in this context. We are really talking about intergenerational debt, since it is current and future taxpayers who are responsible for current government spending, including all debt incurred by government agencies among themselves (such as the spending of Social Security taxes on many other government programs) .
The trust fund is a legal accounting entity that does not hold any real economic assets. This only matters because there is a legal provision that Social Security can continue to run cash deficits as long as the trust fund accounting mechanism tracks a positive value.
So it makes sense to disregard the so-called trust fund and any interest it generates, and consider only current Social Security cash inflows and outflows to understand the program’s slowdown on the economy. and the federal budget. According to this accounting, Social Security spent $1001.9 billion in 2021, while collecting $875.4 billion ($838.2 billion in payroll taxes and $37.2 billion in benefit taxes) , for a Social Security deficit in 2021 of $126.5 billion. Covering this Social Security cash shortfall added to the US public debt.
Congress should reduce Social Security spending by making the programmatic reforms specified above as well as other immediate adjustments such as indexing the program’s cost-of-living benefit adjustments to the CPI chained.
This program represents the largest portion of current federal spending and will continue to grow as more eligible people retire and live longer in retirement. Congress must address the way Social Security benefits are structured and reform the program if it is to achieve its original purpose without unduly harming the prosperity of workers and the growth of the economy. The longer Congress delays, the more costly the adjustments lawmakers will have to make, and the less time and resources American workers will have to prepare, saving and investing to best meet their own needs, now and in their old age.
Expert Biography: Romina Boccia is Director of Fiscal Policy and Entitlements at the Cato Institute, where she specializes in federal spending, the budget process, the economic implications of rising debt, and Social Security reform and health insurance. Boccia was previously director of the Grover M. Hermann Center for the Federal Budget at the Heritage Foundation, where she was the lead author of the organization’s flagship budget plan: The Blueprint for Balance. She has also written chapters for the book: A Fiscal Cliff: New Perspectives on the US Federal Debt Crisis and the peer-reviewed publication: Homo Oeconomicus: Journal of Behavioral and Institutional Economics. This first appeared at CATO.