Let’s Grab the Third Rail

If, like me, you are tired of both parasites, I mean parties, using Social Security as a means of scaring voters, then you probably found all the nonsense following this week’s State of the Union speech a little tiresome. 

It would probably surprise most Americans to learn that there is no legal requirement for the president to give such a speech, and from the presidency of Thomas Jefferson through that of William Howard Taft, presidents had the good sense to skip the personal address and just send Congress a letter.  The letter at right is Lincoln’s second annual message to Congress.  If letters were good enough for Lincoln, I think we might manage to survive without the annual dog and pony show of heavily scripted speeches where the spectators take alternate turns booing and cheering.

Social Security has frequently been called the “third rail of politics” because to even touch the subject invites political suicide.  This means that, instead of anyone sharing facts, you just hear sound bites, accusations, and empty politics.  I’m tired of it, so I will ignore the warnings and say the things that politicians are too afraid to explain.  

First, the information is out there for everyone to see for themselves.  Social Security has trustees, and they make an annual report that almost no one reads and even fewer politicians ever reference, mainly because the news contained in it is bad.  Really bad.  To give you an idea how bad:  some of the trustees are non-political appointees and no one has volunteered to serve lately so there are empty slots on the commission.  Evidently, everyone is afraid of the messenger being shot.  (The phrase ‘killing the messenger dates back some 2400 years to Sophocles.  The verb was changed to shooting during the days of the Wild West…If I were smart, I’d write about that instead of Social Security.)

During his address, President Biden mentioned that ‘some Republicans’ wanted Social Security to “sunset”.  To be more precise, one prominent Republican, Senator Scott of Florida, several years ago suggested that all federal legislation sunset every five years.  The word, “sunset”, in this connotation means to come up for periodic review, to possibly be revised, and to be evaluated for reauthorization.  Many federal laws are already subject to such reauthorization, including the entire Defense Department, which has to be reauthorized every two years.  Periodic review is a good idea, so…is this, perhaps, why then Senator Biden, himself, proposed in 1995 that Social Security should periodically sunset?

There are currently no serious attempts by any politician in either party to change, alter, or end Social Security.  Should such an attempt be made, any law that would harm Social Security could not possibly make it through both houses of Congress, and no president in the last half century would have signed it.

Social Security is deeply, deeply in debt.  For the last five years, it has paid out more than it took in—a condition that is likely to continue for many decades to come.  And what of the Social Security trust fund, that ‘lock box’ that Vice President Al Gore promised us would protect future recipients?  It does exist, but all it has ever held are promissory notes against a future government.  Since the very beginning, all of the incoming receipts from Social Security have been added to the regular Treasury receipts and spent the calendar year they are received.  Nothing whatsoever has been saved or invested against future needs.

You might remember that there have been three different times in the last seventy years that Presidents boasted of a budget surplus.  Well, not really.  If you earned $100,000 and only spent $90,000, you might say that you had ‘saved’ $10,000.  But, if you claimed a surplus while charging an additional $25,000 on a credit card, you would be misrepresenting your actual indebtedness.  This is similar to the so-called budget surpluses.  The United States has been steadily creating unfunded costly promises to future retirees and those unfunded obligations were not listed as part of the deficit.  

Currently, the United States has a $32 trillion deficit, but that does not include the current $68 trillion in unfunded obligations promised to future and current retirees.  (And that latter number is a conservative best case lowest possible amount: it might be as much as 50% higher).

Under current conditions and existing law, if nothing is done to provide additional funding, in the year 2034, Social Security Old Age and Survivor’s Insurance benefits will—by statute—decrease automatically by 23%.  And every year that we wait to correct this imbalance, the amount of mandatory decrease will likely grow larger.  

We have already waited far too long to correct this without feeling some real pain.  If you think that the United States could just suddenly decide to save more money up for the looming financial crises….Well, No!  To fix the problem now, it would take the equivalent of two years entire Gross Domestic Product to correct the problem.  (And remember, that just fixes Social Security—it does not pay off the national debt).

At this point, there are only a few possible solutions left to us.  Here are our remaining options:

1. Dramatically raise payroll taxes.  Currently, Social Security taxes are shared equally by both the employee and the employer.  Both pay 6.2% of wages for a total of 12.4% of wages up to $160,200.  Both the percentage and the wage limit could be raised but this would be unlikely to raise sufficient sums as employers and employees would be likely to find alternative means of compensation to avoid what they see as excessive taxation.

2. Lower the amount paid out by means testing recipients.  Those with adequate retirement income from other sources would find their Social Security benefits lowered or eliminated.  While this might provide significant savings, such a move would be the equivalent of political suicide for the party that supports it.

3. Reduce the number of recipients by raising the minimum retirement age.  This has already been done to a small extent.  People wishing to retire this year with full Social Security retirement benefits must be at least 67 years old.  This number could be raised again, and by a significant amount, but that is likely to be politically unpopular and every politician is very aware that the elderly show up at the ballot box more frequently than their grandchildren do.

4. Congress could eliminate the annual cost of living adjustment to recipients and allow inflation to slowly erode the real cost of future payments.  While this option would avoid any significant reaction from recipients in any given year, it would require Congress to actually pass legislation since the annual COLA adjustments are currently automatic.  This is unlikely since, if Congress could pass bipartisan legislation on Social Security, we wouldn’t be in this predicament to start with.  We might get a committee or another scoring by the Congressional Budget Office, but there is little chance of passing meaningful legislation since all it would take to derail the bill is for one attention-seeking Congressman (redundant) to start yelling, “They are killing senior citizens!”

5. Raise money by selling off national assets.  The federal government could have a garage sale and sell off property to raise funds.  More than half of New Mexico is owned by the government with similar amounts in Nevada and Alaska.  I suppose that it is possible, but it is unlikely that the government would raise funds this way.

That’s it.  I can’t come up with other ways to finance Social Security.  Taxing the rich wouldn’t make a dent in the debt nor would forcing employers to pay some mythical “fair share” in taxes.  What will probably happen is some combination of all five of the above.  Such measures will hurt the economy, and that hurt will be borne by everyone.  It’s a mathematical certainty.

It would be nice to end this on a high note, but that’s not going to happen.  All of the above are only about Social Security.  The future funding problems for Medicare are much, much worse.