“The problem with socialism is that you eventually run out of other people’s money,” Margaret Thatcher once noted.
Something similar is true about Social Security. Even though workers pay into the system, they aren’t collecting their own money when they draw benefits — contrary to popular perception. Instead, Social Security relies on current wage earners to cover retiree benefits — it’s set up as a generational wealth transfer. And, at this point, the demographic reality is there aren’t enough workers to pay for promised benefits.
The Social Security Administration projects that its expenses will exceed its income next year. The Social Security Trust Fund currently sits at $2.9 trillion. That sounds like an overwhelming amount of money, but it’s projected to be gone by 2035. If history is any indication, the money likely won’t last that long, especially if the U.S. economy experiences a recession.
The last time this happened was in 1982. The next year, a Republican-controlled Senate and a Democratic-controlled House made numerous changes to extend the program’s viability. Those changes included slightly increasing the retirement age and boosting payroll taxes.
“This bill demonstrates for all time our nation’s ironclad commitment to Social Security,” President Ronald Reagan said when signing the bill. “It assures the elderly that America will always keep the promises made in troubled times a half a century ago. It assures those who are still working that they, too, have a pact with the future. From this day forward, they have our pledge that they will get their fair share of benefits when they retire.”
But the money doesn’t exist to fulfill that promise.
Unfortunately, President Donald Trump has shown no interest in reform. His most recent budget proposed limited retroactive payments for those who receive disability but don’t file their claims right away. The mainstream media’s apocalyptic reporting on this minor proposal shows why it’s so hard for Republicans to address this issue.
Inaction isn’t the proper course, but at least Mr. Trump isn’t trying to further burden the system. That’s what the more than 200 House Democrats — co-sponsoring the Social Security 2100 Act — would do. That list includes Nevada’s Reps. Dina Titus and Steven Horsford. The bill would increase benefits by an average of 2 percent for those currently receiving Social Security. To pay for that and Social Security’s looming deficits, it would raise payroll taxes from 6.2 percent to 7.4 percent for employees and employers. It would also apply the payroll tax to wages above $400,000. Currently, the Social Security tax isn’t assessed on income of more than $132,900.
Increasing benefits isn’t the correct way to fix a bankrupt system. Instead of Band-Aids such as massive tax hikes, policymakers must address the program’s inherent structural deficiencies and consider partial privatization, raising the retirement age or reducing benefits for the wealthy. None of these reforms will be pain free. Implementing them sooner, however, can soften the blow.