Eleven years. That’s all that’s left until the combined Social Security accounts — the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund — are likely to run out of money and can no longer pay full scheduled benefits, according to the latest report of the Social Security trustees.
I don’t worry too much that the checks won’t go out after the projected 2035 exhaustion of the funds, which though legally separate are often regarded as a single pool of money. Current beneficiaries wouldn’t stand for it, and neither would their children. (Even with no fix at all — highly unlikely — incoming payroll taxes would cover 83 percent of scheduled benefits.)
What I do worry about is what Washington’s patch for Social Security will look like. Flimsy, I’m afraid.
The cold math shows that fixing Social Security in a lasting way will require a combination of tax increases and benefit cuts. Both. Yet Republicans have been loath to discuss higher taxes. And both parties’ leaders — President Biden and former President Donald Trump — have ruled benefit cuts off the table.
I support benefit cuts, although not for everyone. Lower-income Americans should be spared. If anything, their benefits need to go up. People 55 and older should also be spared, since they’re either retired or close to it, so they can’t offset any reductions by working and saving more.
But upper-income Americans of working age are going to have to get used to the idea that Social Security will be less generous than they expected. They will need to stuff more money into their 401(k)s and maybe delay their retirement by a few years.
Social Security’s maximum benefit is about $48,000 this year for someone retiring at the normal retirement age, rising to around $65,000 (in today’s dollars) by 2050. Double those maximums for two-earner couples.
Democrats who otherwise don’t have any problem with taking a bite out of the rich have historically resisted big changes in the benefit formula for Social Security. The program is already a better deal for the poor than for the rich (although that’s partly offset by rich people’s longer life spans). They fear that Social Security will lose political support if it comes to be seen even more as a form of redistribution from the rich to the poor rather than a kind of self-insurance.
But that longstanding fear may be unfounded. Means-tested programs, including Medicaid, college aid and nutrition assistance, have grown rapidly over the past half century and for the most part aren’t perceived as unjustified giveaways.
One reason that Social Security didn’t provide more of a safety net to lower-income people when it was enacted in 1935 is that many Southern Democrats thought Black people wouldn’t work if they had a good retirement benefit from the government, Christopher Pope, a senior fellow at the Manhattan Institute, wrote last year in an article on the RealClearPolicy website. The Jackson Daily News wrote at the time, “The average Mississippian can’t imagine himself chipping in to pay pensions for able-bodied Negroes to sit around in idleness on front galleries, supporting all their kinfolks on pensions, while cotton and corn crops are crying for workers to get them out of the grass.” That racist rationale shouldn’t continue to affect the design of the program.
If fixes for Social Security come down to a choice between A: cutting projected benefits for upper-income Americans and B: drastically raising taxes to help keep those benefits high, voters are highly likely to choose A, argues Andrew Biggs, a senior fellow at the American Enterprise Institute.
Biggs argues that the United States should follow the lead of nations such as Australia, Canada, New Zealand and Britain, which have lower maximum benefits than Social Security provides. “You don’t see Canadians wandering the tundra without any retirement savings,” he told me.
Social Security requires a steady flow of new contributors to make it work. Payroll taxes from young workers go to pay benefits to old recipients. For its first half-century, Social Security was an amazing deal. Retirees received much more in benefits than they paid, even figuring in interest. That’s what made it so popular. But now there are fewer workers per beneficiary, and the trust funds that were built up in a flusher time are running dry. That’s why something needs to change.
Biggs co-wrote a brief in January that called for reducing or eliminating tax preferences for retirement plans, including 401(k)s, and using the savings to shore up Social Security. He and Alicia Munnell, the director of Boston College’s Center for Retirement Research, argued that the tax preferences “seem a bad deal for taxpayers, primarily benefiting high earners while failing to significantly boost national saving.” (The study was cited in a recent article in The New York Times Magazine.)
Biggs is actually optimistic. He argued in a recent essay for The Wall Street Journal that a vast majority of retirees are doing OK and it wouldn’t be expensive to put a safety net under those who aren’t. A Census Bureau report that drew on data about pension plans and other records found that the share of older people in poverty fell to 6.9 percent in 2012 from 9.7 percent in 1990, lower than the official poverty figures.
Only 3 percent of respondents who were 65 to 74 between 2019 and 2022 said they were “finding it difficult to get by,” and an additional 12 percent said they were “just getting by,” according to the Federal Reserve’s Survey of Household Economics and Decision Making. The problem is concentrated, naturally, among those with the least savings. Among people of that age with less than $10,000 in savings, 12 percent said it was difficult to get by, and 30 percent said they were just getting by, Biggs calculated.
That starts to look like a contained problem. People with low incomes clearly need help in their not-so-golden years. They don’t save for retirement mostly because they have no money to spare and partly because they don’t get good advice. “If you cut their benefits, you’re just cutting their incomes,” Biggs said.
Other retirement experts aren’t as confident as Biggs about the financial condition of most older people and the readiness of workers for retirement. “Based on their current account balances, income, saving and investment behavior, three in four workers in our sample are not saving enough for retirement,” a 2022 study published by the Federal Reserve Bank of Chicago found. Laurence Kotlikoff, a Boston University economist, said retirees who told surveyors that they were getting by might have actually been living in uncomfortably straitened circumstances.
Still, to the degree that there’s a problem, it’s mostly among the people who earned the least during their working years. Social Security needs a fix, soon. Transforming it gradually into a safety net for the least advantaged is the obvious choice.
Ukraine’s Refinery Attacks Are Working
Ukraine has launched at least 20 strikes on Russian oil refineries since October, destroying about 14 percent of Russia’s oil-refining capacity and forcing the government to impose a six-month ban on gasoline exports, according to a May 8 article in Foreign Affairs magazine. Vice President Kamala Harris and Defense Secretary Lloyd Austin have expressed concern that the attacks could drive up global energy prices.
But “with less domestic refining capacity, Russia will be forced to export more of its crude oil, not less, pushing global prices down rather than up,” says the article, by Michael Liebreich of Bloomberg New Energy Finance, Lauri Myllyvirta of the Center for Research on Energy and Clean Air and Sam Winter-Levy of Princeton. They present data showing that that’s already happening and conclude, “Ukraine’s campaign is working.”
Quote of the Day
“The time is out of joint.”
— William Shakespeare, “Hamlet” (1604)
