Since President Joe Biden accused the Republicans of proposing to eradicate Social Security and Medicare in his State of the Union address, the retirement scheme has been in the political spotlight. The mainstream media have been on the offensive, too, attempting to prove the Democrats’ claims that the GOP is on the warpath to take seniors’ benefits away. While the right has presented reforms to ensure the program’s financial survival, Republican leadership has been quiet on the subject, seeming to confirm that these entitlement schemes are off the table during the debt ceiling discussion. So, is anyone in Washington taking this issue seriously?
Social Security Proposals
The House Republican Study Committee, the largest GOP caucus with 170 members, released a list of changes lawmakers would like to see, especially on the Social Security front. In order to facilitate the system's long-term solvency, the group proposed raising retirement eligibility to 70 from 67. But, so far this year, increasing the age seniors can receive monthly payments has been the only significant public policy suggestion. Over the years, some Republicans have considered other measures, including means-testing and allowing young people to opt out of the system.
But some economists wonder if boosting the retirement age by a few years would achieve anything fiscally substantial for Social Security.
“Raising the retirement age even up to 70, which is probably what they're [Republicans] thinking, is going to happen too slow to matter. It is not going to produce some present value of money,” said Laurence Kotlikoff, a professor of economics at Boston University and best-selling author, in an interview with Liberty Nation.
Sen. Rick Scott (R-FL) ostensibly adjusted his five-year sunset plan to exclude Social Security and Medicare explicitly. "Note to President Biden, Sen. [Chuck] Schumer [(D-NY)] and Sen. [Mitch] McConnell (R-KY)] — As you know, this was never intended to apply to Social Security, Medicare, or the U.S. Navy," Scott wrote. In a separate Washington Examiner op-ed, the senator reiterated that he "never supported cutting Social Security or Medicare, ever."
In recent weeks, the White House and the press have pounced on the sunset plan, asserting that this is proof the GOP aims to abolish Social Security.
Sen. Elizabeth Warren (D-MA) and Sen. Bernie Sanders (I-VT) believe they have a solution to keep the federal program intact and expand recipients' benefits. The legislation – the Social Security Expansion Act – would add a 12.4% payroll tax on ordinary income above $250,000, increasing the effective top rate from 37% to 49%. The bill would also implement a 12.4% payroll levy on all investment income – capital gains, interest, dividends, and coupons – for those earning more than $250,000.
Overall, bill sponsors estimate that these legislative efforts would bolster Social Security benefits by $2,400 per year and extend solvency for the next 75 years. However, Kotlikoff noted that this proposal would produce the unintended consequences of enabling more people to stop working or leave the United States.
"We've got lots of people who are very poor because they're not working, because it doesn't make any sense for them to work because they lose so much money," the president of Economic Security Planning explained. "We cannot reform our fiscal system in a way that makes our current work incentives – disincentives – worse, which is what Warren's talking about."
Meanwhile, Biden has no plan, and former President Donald Trump has urged his fellow Republicans not to touch the golden egg.
The Challenges Facing Social Security
"It's actually in worse shape than anybody really knows," Kotlikoff bluntly stated about Social Security.
The data supporting this notion are certainly in the reports, charts, and tables. Anyone who examines the numbers will agree that it is on the brink of a financial collapse.
The Congressional Budget Office (CBO) revealed in a December 2022 report that Social Security insolvency is only a decade away as it faces a more significant shortfall. The budget watchdog projected bankruptcy for the combined Old-Age and Survivors Insurance (OASI) in 2033 and Social Security Disability Insurance (SSDI) trust funds in 2035. Moreover, current numbers show that Social Security is facing a shortfall of $61 trillion. When Medicare is added to the mix, the federal government maintains unfunded liabilities of more than $93 trillion.
Right now, Kotlikoff purported, the $61 trillion shortfall represents more than two years of gross domestic product. By comparison, the national debt is close to one year of GDP.
(Photo illustration by Kevin Dietsch/Getty Images)
The causes for its financial destruction vary. The Social Security Administration (SSA) published a detailed report in 2006 that addressed the demographic changes occurring in the United States, such as a declining birth rate and increasing life expectancies, as contributing to the myriad of problems facing the retirement program. It proposed raising the normal retirement age, implementing life expectancy indexing, or encouraging continued work.
A declining population is troublesome because it means fewer workers will support each retiree in the future. Remember, the American people are not depositing their earnings into an account that will be there for them when they receive a gold watch and retirement party. Social Security depends on today’s workers. The ratio of workers paying Social Security taxes per beneficiary is forecast to fall to 2.3 by 2035, down from 2.8 in 2021.
In the end, the United States will need to grapple with a "terrible long-term problem," Kotlikoff averred. "You've got a fiscal gap that equals basically 8% of GDP forever in the US. We can either raise every single federal tax ... by 47% immediately and permanently or cut every outlay by about a third immediately, permanently, to achieve balance."
Is anyone in Washington ready for these tough solutions?
Eternal Can Kicking
The nation's capital is filled with men and women who fly by the seat of their pants and live in fear until the next election cycle. Unfortunately, that’s nothing new. But because of this decades-old irresponsible behavior on Capitol Hill, Social Security is in a pecuniary mess. With no palatable solution, lawmakers kick the can down the road and hope the next generation of liberals and conservatives can resolve Uncle Sam's fiscal crisis.
