When ignorant people want to sound serious, they start solemnly intoning about the Social Security funding crisis and the need for a “long-term” “fix” to the “problem.” This serves three useful purposes: it allows the speaker to change the subject from any actual problems existing today, it provides the superficial cover of concern for vulnerable populations, while also giving a sheen of non-partisanship to plans that will decimate the working class.
This makes it extremely important to understand what the Social Security funding “crisis” will look like in the real world.
Nothing at all will happen until 2034
The most important chart to understand in the Social Security Trustees’ report is Figure II.D2, which I’ll reproduce in its entirety:
What this chart says is that until 2034, under current law, with no additional benefit cuts or additional taxes or funding streams, the Social Security Administration is projected to be able to pay 100% of scheduled benefits, including old age, disability, and survivor benefits. So whether or not any changes are made to Social Security, nothing will change for any new or existing beneficiaries for the next 15 years.
If you are not a current beneficiary, or planning to begin receiving benefits soon, you may find this pedantic, but if you’re already receiving benefits you should know: under current law your benefits will not change in any way for the next 15 years.
What happens after 2035?
After 2035, the Social Security trust funds are projected to begin exhausting the Treasury bonds they accumulated during the years the funds took in more money than they paid out in benefits. Unlike a private company that does not receive enough income to repay its debts, the Social Security Administration cannot, and does not have any need to, “declare bankruptcy” or “go bankrupt.”
Instead, as Figure II.D2 shows, benefits will be reduced to the level payable through annual payroll contributions. In 2035 the actuaries predict there will be a 20% reduction in payable benefits, which will increase excruciatingly slowly to a 25% reduction by 2093.
This is an important moment to remind you that the exhaustion of the trust fund cannot “reduce your promised benefits,” because these are the benefits promised by the Social Security Act, as amended. If you’re happy with 20-25% lower benefits in old age, disability, or widowhood after 2035, you don’t need to do anything and you don’t have a dog in this fight.
Should we allow this benefit cut to take place in 2035? Probably not!
If, like me, you think the American welfare state is not generous enough then, like me, you probably don’t think we should suddenly cut Social Security benefits in 2035.
But if you think the American welfare state is not generous enough, then you have the luxury of other, lower-hanging fruit. The Trump administration is planning to reimpose a cumbersome asset test on SNAP beneficiaries nationwide, denying 3.1 million people access to nutritional assistance. Another 500,000 elementary and secondary students are expected to lose access to free school lunches.
Meanwhile, Republican officials are using a laughable legal argument to pursue the invalidation of the Affordable Care Act, including its protections for pre-existing conditions, subsidies for low-income workers who don’t receive health insurance through their employers, and Medicaid expansion. And thanks to the Republican effort to amateurize the judiciary, there’s no reason to believe they won’t win in front of the Gorsuch-Kavanaugh Supreme Court.
If you’re elevating a fantasy problem in 2035 over the real problems we’re facing right now, your priorities say a lot about you and nothing about Social Security’s funding mechanism.
My boring solution to the imaginary Social Security funding crisis: magic it away so we can address real problems
The total funding shortfall between now and 2093, in the Social Security Trustees’ actuarial report, is a bit under $14 trillion, or $186 billion per year for the next 75 years.
So here’s my boring solution: let’s round up, and deposit $14 trillion in special issue Social Security bonds into the relevant trust funds, out of nowhere. This will, of course, increase the debt service costs of the US government as it pays interest on those bonds, and that increased cost will need to be financed through reduced spending, increased taxes, or seignorage.
But this is, of course, the exact issue the Social Security funding “crisis” is supposed to present: should we reduce spending, increase taxes, or print money? It may be that we should reduce Social Security benefits, especially for higher earners. It may be that we should increase them, especially for low-income workers and those with a limited official work history.
But since there’s obviously no reason Social Security benefits should be tied to the year-to-year revenue produced by FICA taxes, we can easily make sure they aren’t.
In reality, no one in politics wants to solve the imagined Social Security funding “crisis.” When the Greenspan amendments to the Social Security Act were made under Reagan, they were explicitly designed to create another funding crisis further down the line, so that benefits could be cut further.
Whether we want benefits to be cut or not is up to us. We can eliminate the cap on Social Security taxes and treat capital gains and dividends as ordinary income and eliminate the “funding gap” tomorrow. Some of us support those policies, others oppose them, but no one should support or oppose those policies because of their downstream effect on Social Security benefits: whether or not Social Security benefits are suddenly cut 15 years from now doesn’t have anything to do with the program’s funding mechanism.
Rather, it’s a question about who we are and what kind of country we want to live in. That’s the question Roosevelt had to answer in 1935 when Social Security was created, and it’s the question we have to answer today. Nothing an actuary says is going to get you out of having to answer it for yourself.