Thursday, July 18, 2024

We Must Save Social Security Before Its Too Late

The U.S. government has hit its “debt ceiling” and Republicans are trying to force spending cuts. One of the big questions that are being debated is what to do about Social Security. After all, the increased costs of the program due to the retirement of the Baby Boomers is one of the main drivers of the increase in the national debt, along with the various healthcare programs administered by the federal government.

Former President Donald Trump has weighed in on the issue telling Republicans not to touch Medicare or Social Security. Trump’s defense of entitlements was likely one of the major reasons why Trump won the Republican nomination for president in the first place in 2016. For a party that is as reliant on the senior vote as the Republican Party is, not touching the program is probably the best move politically, at least for the short term.

But in the not-too-distant future, many of the people who are key voters for the Republican Party will be hurt and hurt badly if we do not save the program. On its current trajectory, the Social Security trust fund will run out of money by 2034. That’s just 11 years from now.

What happens if the trust fund is depleted? It will have to cut its benefits by as much as 23%. As of December 2022, the average Social Security retirement benefit is $1,825.14. If nothing is done and forced cuts are made in 2034, that benefit drops to $1,405.36.

Why is Social Security in trouble? The short answer is that there are not enough workers to pay for the promised benefits of the retired and soon-to-be-retired. There are no individual accounts in Social Security. Instead, money is taken from the payroll taxes of those currently working and it is redistributed to those who receive benefits. Is Social Security essentially a legal Ponzi Scheme? You wouldn’t be the first one to make that comparison.

Although Social Security is structurally flawed in its current system, we cannot just kill the program or let the automatic cuts happen. It would not be fair to current retirees and those who are soon to be retired. These are people who have made their plans expecting Social Security to keep its promises. There is also growing evidence that private retirement savings such as pensions and 401(k)s are simply not adequate. Estimates are that nearly half of all American working households do not have any retirement savings at all.

How do we solve this? Realistically it will be some combination of raising payroll tax rates, raising the cap on how much payroll taxes are collected, and means-testing that would reduce or eliminate benefits for wealthy Americans. The sooner we as a nation address this problem, the less painful it will be.

Another related long-term issue is the fact that Americans are simply not having enough babies. We need to have a culture and economy that promotes the family and part of that is encouraging Americans to have more babies.

The best time to address the problems with Social Security was in the 1990s and in 2005 when former President George W. Bush proposed creating individual accounts and got little to no support from even his own party. The second best time to save Social Security is now before devastating automatic benefit cuts are made.