Long before Coronavirus infected 500,000 Americans and forced the federal government to mortgage the future for short-term survival, Social Security was already sick and on life support. Over the years, the bean counters have sounded the alarm on the tens of trillions of dollars in unfunded liabilities and expenditures, including Social Security. But with millions out of work and the economy in shambles, the retirement Ponzi scheme's fragility has been exposed. Is it another victim of COVID-19, or is it a casualty of politicians' inept management and penchant for kicking numerous cans down the road?
Social Insecurity
Social Security is forecast to cost about $1.15 trillion this fiscal year. Payroll taxes primarily support the pension scheme. With 26 million – and counting – Americans out of work, its funding mechanism is going to take a significant hit. Even if the U.S. economy were to reopen tomorrow, it is unlikely that everyone who lost their jobs will suddenly return to their former positions. So, because the government-run retirement system has been hemorrhaging over the years, SS is unlikely to withstand the financial pressure.
SS and Medicare released their 2020 trustees report, and the authors projected persistent long-term funding shortfalls for retirement, disability, and seniors' health care benefits. What is more intriguing about these assessments is that they do not reflect forecasts from the Coronavirus crisis, suggesting little change in pre-pandemic finances. Likewise, the budget deficit was already on track to be enormous, but the COVID-19 outbreak will enhance the unpleasantness.
Right now, Social Security is projected to pay out full scheduled benefits until 2035, while Medicare's Hospital Insurance Trust Fund is slated to be solvent until 2026. However, the White House is reportedly examining a 15% drop in revenues for the rest of 2020, leading to conclusions that the two programs' depletion dates will be accelerated. Officials are expecting a worst-case scenario in which both Social Security and the Medicare hospital trust fund would be drained in 2023.
While benefits will not be altogether eliminated, officials are anticipating these programs to cut payments by at least 10%. These are ostensibly "high-cost scenarios," but an administration official recently told reporters that "it is also possible that the experience could be even worse than that," and "that they are generally going to be worse than presented under the immediate assumptions."
The coronacrisis, a sliding fertility rate, and joblessness are all factors that could force a faster-than-expected depletion. If this happens, expect a haircut in your benefits and a check for less than what you are owed. Is there any way to solve Social Security? There are tough pills to swallow, such as raising the retirement eligibility age and performing means-testing, but these are not politically feasible solutions.
A Ray of Sunshine
The problem with COVID-19 is that politicians and bureaucrats can use the virus as an excuse. They can mendaciously state that all the financial woes occurring today are a result of the Coronavirus. It is as if we have no recollection of anything that transpired before March 2020. The Land of the Free is forgetting about the trillion-dollar deficits, the $23 trillion national debt, the $200 trillion in unfunded liabilities and expenditures, and the pending insolvency of many costly public programs. It is convenient to persuade the population to believe that everything was sound until this highly infectious respiratory illness hit the shores of the United States.
But the Coronavirus is acting as sunlight to expose the toxicity inside the Swamp. Social Security was already a mess, and now its problems have been amplified due to the nationwide disruption. SS received a little more than $1 trillion in income last year, but the program spent the same. One can only imagine what the numbers will show for FY 2020 since it could not afford a drop-off in revenues, even for a month or two.
Be afraid, be very afraid.
Over and Under
For decades, politicians have overpromised and underdelivered. In the age of Coronavirus, the suits in Washington must take a different approach: under-promise and underdeliver. This is the only sensible tactic for a government that has, for far too long, spent more than it has taken in. Whether it is putting wars on a credit card or trying to give every citizen something from the state, the electorate may need to demand their esteemed representatives stop promising the moon and start behaving like responsible adults. Unfortunately, at a time when fear is paramount, and a considerable portion of the citizenry is having a tough time coping with this new reality, we will run into the arms of those who control the public purse, the printing press, and the laws.
It is easy to espouse your principles and practice what you preach during good times. It is hard to stick to your beliefs when the system around you has been decimated, and you have been cut off at the knees. Both the progressive and the conservative scales of right and wrong has never been more challenging to weigh than in the coronapocalypse.
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Read more from Andrew Moran.
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