The Newest Report on Social Security’s Solvency Will Look Familiar: Cuts are Barely Over a Decade Away Unless the Politicians Act
Periodically as we prepare articles for the AgingOptions blog, we get an overwhelming sense of déjà vu, as if we’ve read the exact same story several times before. Reports about the health of the Social Security system are a case in point. In late August the Social Security and Medicare Trustees Report for 2021 was released (here’s a link to a 4-page fact sheet), and while on the surface the language was a bit optimistic, the story was awfully familiar.
The bottom line: in a bit over a decade, give or take a few years, the Social Security Trust fund will be gone. Revenue coming into the system will be roughly 22 percent less than beneficiaries are expecting. A benefit cut is inevitable, unless Congress acts. And Congress is mired in partisan gridlock. Like we said, it’s deja vu. So, to gain a fresh perspective, we turned to this NextAvenue article written by Chris Farrell, a senior economics contributor for American Public Media’s Marketplace, to see how he describes the Social Security conundrum.
COVID’s Harm to Social Security Less Than Many Feared
“Whew!” Farrell begins his report. “The pandemic had a smaller impact on the Social Security trust funds — that is, Social Security’s solvency — than many feared during the depths of the pandemic downturn.” But the news, while not as bad as it could have been, isn’t exactly rosy. “The depletion date for the combined trust funds —retirement and disability — is 2033 without any changes to program benefits,” he continues. That’s one year earlier than the estimate from 2021, which predicted “trust fund depletion” in 2034.
Farrell is quick to point out that the depletion date doesn’t mean the system will be bankrupt. “Far from it,” he writes. “Funding from payroll tax receipts will be enough to pay 78 percent of promised benefits after the combined Social Security trust funds depletion date is reached.” Optimists have been quick to point out that this shows the strength and resiliency of the Social Security system. But others respond, “How will I ever afford a 22 percent benefit cut?”
Social Security Trustees Blend Optimism with Caution
According to Professor Eric Kingson of Syracuse University, the newly-released Trustees’ Report is like a road map, “[providing] information for Congress and the public on what needs to be done to maintain benefits.” This view was echoed by Nancy Altman, president of an organization called Social Security Works, and a possible Biden appointee to run the Social Security Administration. “Today’s report shows that Social Security remains strong and continues to work well, despite a once-in-a-century pandemic,” she said. The fact that the pandemic only accelerated the depletion of the trust fund by one year, in Altman’s view, “proves once again that our Social Security system is built to withstand times of crisis, providing a source of certainty in uncertain times.”
But in spite of the positive spin, Farrell noted in his NextAvenue article that the Social Security Trustees sounded a “strikingly cautious” tone regarding the longer-term impact of the pandemic. “Despite the dry language of actuaries,” says Farrell, “the uncertainty is apparent.” During the worst of the pandemic in the second quarter of 2020, unemployment spiked while earnings, interest rates and GDP all dropped substantially. “As a result, the decline in payroll-tax receipts which pay for Social Security benefits eroded the trust funds.” All this represents what the report calls an “unprecedented level of uncertainty.”
“At this time,” the report states, “there is no consensus on what the lasting effects of the COVID-19 pandemic on the long-term experience might be, if any.”
Sustained Political Attention is Urgently Needed, but Unlikely
Farrell sounds a pessimistic note concerning the odds of near-term political action. “Odds are the coming Social Security financing shortfall won’t get sustained attention from either the Biden administration or Congress despite the need to take action before 2034,” he writes. “The Trustees aren’t too happy about that.”
In their report, their impatience is clear: “The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them. Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits.” The report calls for “informed discussion, creative thinking, and timely legislative action” – all of which are currently in short supply in Washington, D.C.
Other Priorities Delay Social Security Reforms
The reasons that the Social Security can keeps getting kicked down the road are political, says Farrell. On the Democratic side, President Biden and his Congressional allies are putting all their energies behind the ambitious $3.5 trillion infrastructure spending package, while also dealing with the fallout from the chaotic Afghanistan withdrawal. As for Republicans, most are on record supporting so-called entitlement reform (“think Social Security benefit cuts,” says Farrell), and most GOP legislators oppose tax hikes, which many Social Security rescue plans will require.
We lack the space here to outline all the various legislative moves Farrell describes in his NextAvenue report, but there’s plenty of maneuvering and jostling going on. Utah Senator Mitt Romney drew headlines a few months ago when he proposed what he named The TRUST Act, which calls for closed-door meetings of a bipartisan group tasked with drafting a plan to restore solvency by June 1 of the year after passage of the Act. Congress would then get an up-or-down vote, with no amendments allowed. But the AARP and other senior advocates were quick to give the plan a resounding thumbs down. The organization rejected the closed-door nature of the deliberations and expressed concern that the act would provide a fig leaf to allow benefit cuts to pass, something the AARP firmly rejects.
Dems Say Benefits Must Grow, Not Shrink
For their part, Farrell explains, most Democratic members of Congress are not content merely to avoid cuts in Social Security benefits. Instead, many have called for expansion of Social Security plus higher guaranteed benefits for those in greatest need. To address Social Security’s shortfall and pay for the new benefits, says NextAvenue, Democratic plans include tax hikes: bumping up the 6.2 percent payroll tax rate, or raising (or even eliminating) the $142,800 limit on annual earnings subject to Social Security taxes.
In any case, says Farrell, Social Security benefit cuts are off the negotiating table for the Democrats. “Biden has made a commitment not to cut and to make modest improvements in benefits,” says Syracuse University’s Kingson. “He won’t back off that.”
“The issue over how best to restore financial solvency to Social Security isn’t going away,” Farrell writes. “That’s because the program is fundamental to the economic security of retired Americans. Social Security currently pays benefits to 49 million retired workers and dependents of retired workers (as well as survivor benefits to six million younger people and 10 million disabled people).” Clearly, political action is required. But can our fractured system of governance allow for dialogue and compromise? Stay tuned and we’ll keep you posted here on the AgingOptions blog.
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Photo Credit: www.taxrelief.org
(originally reported at www.nextavenue.org)