Social Security catch-22 is bad news for retirees
As you may have heard, the most successful social program in our country is a little stuck.
Every year since 1982, the Social Security program has generated a net cash surplus. By generating more revenue than the benefits paid out each year, the program was able to build a reserve of $ 2.9 trillion. However, according to the 2019 Social Security Board report, the program is on the verge of reaching an unwanted inflection point.
You see, more than half a dozen of the demographic changes underway are expected to result in Social Security spending more than it collects in 2020. While this initial net cash outflow is relatively small, the amount coming out of the program will increase. exponentially in the following years. year. By 2035, Social Security’s asset reserves of $ 2.9 trillion are expected to be completely depleted.
If there’s one bright spot to point out about this mess, it’s that Social Security, which has stood the test of time by making guaranteed monthly payments for 80 years and cash in, is not going anywhere. Social security cannot go bankrupt, in part thanks to its two recurring sources of income.
However, that doesn’t mean things won’t be painful for its recipients. If congressional lawmakers can’t find a way to address an estimated $ 13.9 trillion cash deficit between 2035 and 2093, current and future retirees might consider a benefit reduction of up to 23% within 15 years.
Social security ends up in a Catch-22
The problem is, Social Security ends up in a Catch-22. The phrase “Catch-22” describes a dilemma that offers no escape due to mutually conflicting or dependent conditions. In the case of Social Security, whatever unilateral proposal is made to resolve the program’s cash flow deficit over the long term (defined as the next 75 years), benefit cuts for retired workers appear to be self-evident. Let me explain.
On Capitol Hill there are two basic methods to repair social security. There are the Republicans, who prefer to gradually reduce long-term spending paid by Social Security, and there are the Democrats, who prefer to raise additional revenue for the program. As you will see, whichever route you choose, benefit cuts become a necessary evil across the board.
If the GOP was successful and the full retirement age – that is, the age at which a beneficiary becomes eligible to receive 100% of their monthly payment, as determined by their year of birth – have been gradually increased from its current expected high of 67 in 2022 at, say, 70 years old, such a move would reduce program spending in the long run. Unfortunately, it would take decades for increasing the full retirement age to have a significant impact on social security spending. Thus, this would do nothing to prevent program asset reserves from running out by 2035 and therefore result in benefit cuts.
What you might be shocked to learn is that the Democrats’ proposal to raise or even eliminate the payroll tax cap to generate additional income would also lead to possible reductions in benefits. Although raising or eliminating the payroll tax ceiling ($ 137,700 in 2020) would generate an immediate inflow of new income and push back the depletion date of asset reserves provided later, no amount of newly added income will be added. may explain some of the demographic changes underway. For example, Record birth rate for women of childbearing age, lower net immigration rates and increased longevity are all likely to significantly increase the amount of additional income needed to maintain the existing payment schedule, including cost of living adjustments.
Whichever unilateral path is chosen, the reduction in benefits ultimately becomes a necessity to support the solvency of Social Security.
Political pride prevents Republicans and Democrats from working together on a solution
Now there is a third solution to fixing Social Security, and it would work, in theory, considerably better than either one-sided solution or the other – and that is to combine the fundamental proposals of the Democrats and Republicans into one. solution. In other words, increase or remove the ceiling on taxable earnings to meet short-term social security income needs, while meeting long-term expenses by gradually raising the full retirement age for social security. the younger generations of workers.
While a bipartite solution would solve many of the weaknesses described above, it has virtually no chance of taking off. The problem is that each party comes up with a proposal that works, albeit with different timelines. Because their solutions work, there is no incentive for lawmakers in a party to find common ground with their opposition.
It should also be noted that 60 votes will be needed in the Senate to amend the law on social security. Considering that no party has had a true qualified majority (besides independents) in the Senate for more than 40 years, bipartite cooperation is essential to push through changes to the American social program.
So, to sum up, the two one-party solutions would ultimately lead to reductions in benefits, while a two-party approach that would strengthen social security in the short and long term. is held back by political pride. Suffice it to say that current and future retirees simply cannot win.