February 15, 2023

As Social Security Races Toward a Cliff, Both Parties Refuse to Act

On countless issues, the parties are miles apart. On Social Security, they march in lockstep.

“So, folks, as we all apparently agree,” President Biden said to bipartisan applause during his State of the Union address, “Social Security and Medicare is off the books now, right? They’re not to be touched? All right. All right. We got unanimity!”

Moments earlier, Biden had triggered booing and a shout of “Liar!” when he claimed that some Republicans (“I’m not saying it’s a majority”) were demanding cuts to Social Security in exchange for raising the debt ceiling. Biden’s charge rested on the thinnest of reeds — a wish list compiled last year by Senator Rick Scott of Florida that included a five-year sunset rule for all federal legislation. Scott’s proposal wasn’t focused on Social Security and in any case was promptly rejected by Republican leaders.

When Republicans indignantly protested Biden’s accusation, the president switched gears, hailing the bipartisan support for keeping Social Security inviolable. “Let’s stand up for seniors! Stand up and show them: We will not cut Social Security!” On both sides of the aisle, that drew cheers and an ovation.

Republicans and Democrats these days are unanimous that Social Security not be reined in. “There’s not a single soul on either side [who supports] cutting benefits,” Representative Kevin Hern, an Oklahoma Republican, told Bloomberg Law last week. Former president Donald Trump declared that “under no circumstances” should the GOP “vote to cut a single penny” from entitlement programs like Social Security. House Speaker Kevin McCarthy vows that cuts to Social Security “are off the table.”

On countless issues — crime, gender, immigration, energy — the parties are miles apart. On Social Security, they march in lockstep. Which is another way of saying that both parties are committed to doing nothing as the government’s costliest spending program careens toward insolvency.

Social Security eats up more than one-fifth of the federal budget — considerably more than the military — and the benefits it pays out outstrip the payroll taxes that fund it. Washington has long known that as the baby boomers retired, Social Security would collide with an actuarial iceberg. Sure enough, the program’s latest trustees’ report warns that it “will be able to pay scheduled benefits on a timely basis until 2034. … At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 77 percent of scheduled benefits.”

The bipartisan commitment to not touch Social Security, in other words, is really a commitment to slash benefits by 23 percent in just over a decade. Under existing rules, the only way to ward off those cuts will be to sharply increase payroll taxes, which already consume 15.3 percent of every worker’s pay. As with all pyramid scams, the momentum of paying benefits to earlier investors can be sustained only by taking in more and more money from those who come afterward. But since the availability of new investors is never infinite, that momentum can’t be maintained.

Social Security has been analogized to a Ponzi scheme by observers as diverse as Nobel laureate Milton Friedman, liberal commentator and journalist Michael Kinsley, and Senator John McCain. To be sure, there are significant differences. Ponzi schemes, which are illegal, are intended to defraud. Social Security, which is mandatory, is intended to provide a safety net for the old. But the essential imbalance is the same in both: too many people collecting, too few paying in.

When Social Security began, there were dozens of workers paying taxes into the system for every retiree who was taking benefits out. By 1950, the ratio had slipped to 16.5 to 1. Now it is less than 3 to 1. Funds drain from the Social Security trust fund faster than they flow in. The shortfall this year will be $47 billion. Next year it will be $56 billion. The following year, $84 billion. By 2034, the year the trust fund runs dry, Social Security will be $350 billion short of what it needs to pay full benefits.

Ronald Reagan liked to note that “facts are stubborn things.” The last time Congress and the White House worked in bipartisan fashion to address the stubborn fiscal and demographic facts that make Social Security unsustainable was in 1983, on Reagan’s watch. Since then nothing has been done to reform the giant entitlement program. Instead, Democrats and Republicans issue hearty assurances that Social Security is “off the table” and “not to be touched.” But reality is not optional. Congress can pretend all is well, but the crisis is coming.

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