Recent headlines about Social Security Trust Funds warned of “looming insolvency” and “grim news for future retirees.” The real Social Security deficit is CAD, the Congressional Action Deficit. The solutions are clearly understood, frightfully unpalatable, and politically inevitable. Readers, here is my attempt to get real.
Doomsday headlines arrived after the annual report by the Trustees of Social Security funds. I’m going to cover Social Security Old Age and Disability Income (Social Security and Disability Income) as one trust fund (OASDI), because they both have deficits and the solutions are similar for both. Medicare and Medicaid funds also show deficits, but that’s for future discussion.
Congress has been blessed with three presidential commissions in 1983, 2002 and 2010 that have proposed consistently reasonable policy solutions to solve this non-crisis. The 2002 Commission warned Congress to act, and despite admitting acting sooner is better, Congress has not improved funding for eight years.
Undaunted, Trustees once again proposed a payroll tax solution to solve the deficit by increasing taxes 1.335 percent on employers and employees. Households with the approximate median income of $50,000 would pay tax increases of $668 a year or $55.63 a month. Working people paying the tax appeals to me as a retiree because my benefits would stay the same. After all, I paid my taxes to support retirees before I retired. It’s future retirees’ turn to pay mine, thank you.
Workers, employers and my children could insist Congress do nothing because current law has a solution that prohibits the fund from dropping to zero. It’s the exhaustion trigger. Exhaustion is not zero. It’s when the fund level drops to a point where continuing to pay current benefits would zero out the fund eventually. Instead, payments must be reduced to a sustainable level.
The mandated exhaustion cut would be deep, estimated at 25 percent. The current average payment to a retiree is $1,230 per month, so 25 percent would drop payments $308 per month. Ouch. The only good news for retirees is fund levels should pay that income permanently. That would eliminate the annual May disaster warnings. Future reports could announce, “The fund is still exhausted.” Congress could debate other inactions. Current working folk and businesses would avoid tax increases.
Working folk would have to increase their savings rates because they’ll suffer lower social security benefits when they retire. They could cut their current spending and save the $55.63 they’d pay under a tax increase. They should plan to work longer. Unfortunately, their parents and grandparents on reduced social security may need more financial help.
Given these singularly unacceptable solutions, the presidential commissions proposed combinations of increased taxes, reduced benefits and delayed retirement ages. The combinations are so simple you can choose your preferred cuts by playing the game on the website actuary.org/socsec.asp. I solved the deficit in ten minutes by increasing the retirement age, decreasing benefits at higher income levels (including mine) and increasing payroll taxes by half-of-one percent. The tax hike costs $20.83 per month from a $50,000 household income. I think my children and I could agree on that.
Other solutions exist. Economists since Paul Samuelson have shown our economy has grown for centuries when qualified, skilled immigrants perform work our consumers need. Companies unable to find workers here ship jobs offshore, reducing our payrolls. Yet most immigration policy discussions focus on illegal immigrants taking low-level jobs. Lifting our vision to realize we block high paying skills our nation needs that would add a wealth of good to our economy. Congress could also index social security taxes to automatically rise or fall to match the income needed to fully fund the trust.
Such common sense ultimately triumphs in our nation. When Congress once again gets real, a sensible, equitable Social Security system should survive. Congress, eliminate your self-defeating CAD, your Congressional Action Deficit.