As you and most Americans are probably well aware, Social Security, arguably the most important social program, is in some pretty serious trouble. Despite single-handedly keeping more than 22 million of its 63 million beneficiaries out of poverty with its guaranteed monthly payout, Social Security's existing payout schedule simply isn't sustainable over the long haul.
According to the Social Security Board of Trustees, the program is very close to a point where it's expending more each year than it's collecting. The last time this happened was all the way back in 1982. Although the net cash outflow from a number of demographic changes will start out pretty small, these changes are expected to dramatically widen this outflow with each passing year. By 2034, the program's $2.89 trillion currently in asset reserves is forecast to be completely gone, leaving then-current and future beneficiaries with the very real possibility of a benefits cut totaling up to 21%. Given how reliant today's retired workers are on Social Security, a 21% cut in 15 years' time could prove devastating.
Expanding Social Security benefits is probably off the table
This imminent cash crunch for the program has many Americans calling on Congress to stop sweeping Social Security's issues under the rug and put forward a real resolution.
Earlier this year, both Rep. John Larson (D-Conn.) and Sen. Bernie Sanders (I-Vermont) did just this by reintroducing respective legislation designed to not only curb the projected $13.2 trillion in cash shortfall between 2034 and 2092, but ultimately expand benefits to all beneficiaries. Larson's Social Security 2100 Act and Sanders' Social Security Expansion Act both aimed to reintroduce Social Security's payroll tax on high-income earners, as well as switch the program's inflationary tether to the Consumer Price Index for the Elderly (CPI-E).
While these ideas probably sound great on paper, the truth of the matter is that expanding Social Security benefits is a much tougher sell than you probably realize.
1. The wealthy are already contributing their fair share
The first issue revolves around collecting a significant amount of extra income from wealthy Americans. In order to expand benefits, the Social Security program would need a serious infusion of extra revenue, and the easiest way to do that would be to expose earned income that's currently exempted from the payroll tax -- anything above $132,900 in 2019 -- to the 12.4% payroll tax. After all, between 1983 and 2016, the amount of earned income exempted from this tax has basically quadrupled from $300 billion to $1.2 trillion.
The obvious lure of increasing taxation on the rich is that it would only impact a small fraction of the working population. For instance, only about 1% of workers would be affected by Larson's plan to reintroduce the payroll tax on earned income above $400,000. Since it impacts so few working Americans, the idea of taxing the rich has a lot of support.
But put in another context, the rich are already paying their fair share into the system. The reason the cap exists on what earned income is taxed is because the Social Security Administration also caps maximum monthly benefits at full retirement age. Although the figure can change from year to year, the most any individual can receive each month at full retirement age from Social Security is $2,861, as of 2019. It wouldn't make sense to tax $1 million, or $10 million, in earned income at 12.4% if that individual would only receive a maximum of $2,861 in monthly benefits in 2019 at full retirement age. Even though the idea is bound to be unpopular, the rich are already paying their share into Social Security.
2. The CPI-E probably needs a lot of (costly) work
Under the current system, Social Security's inflationary tether is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). As the name implies, the CPI-W measures the spending habits of urban and clerical workers, many of whom are of working age, and nearly all of whom spend their money very differently than the 44 million retired workers currently receiving benefits. This results in important expenditures to seniors, such as medical care and housing, being deemphasized, while less-important costs, like education, apparel, and transportation, bear a higher weighting. Ultimately, it means a lower annual cost-of-living adjustment (COLA), and therefore a precipitous loss of purchasing power for seniors.
Now, the idea behind the CPI-E is genius. The CPI-E would only focus on expenditures from households with seniors aged 62 and up. This would, therefore, lead to a higher weighting of the costs that actually matter to retired workers, and should result in a larger annual COLA, which, over time, can add up to a much larger annual and lifetime benefit.
But there are problems with this thesis. First, the CPI-E isn't perfect, and it still ignores certain medical costs, such as Medicare expenses, which can make up a significant portion of seniors' expenditures.
Additionally, a somewhat recent report from the Government Accountability Office reminds folks that the CPI-E has long been considered an "experimental index" by the Bureau of Labor Statistics. Not only would it cost Social Security more in outlays if it were switched to the CPI-E from the CPI-W, but there would be significant time and monetary costs needed to improve the methodology to produce the CPI-E.
3. A number of demographic changes may be understated
Another reason expanding benefits would be a tough sell is that forecasters may be underestimating a number of ongoing demographic changes.
For instance, longevity, which is a fancy word for life expectancy, has been on the rise for much of the past eight decades that Social Security has been cutting benefit checks to retired workers. When the program was first conceived in 1935, it was believed that retirees would lean on the program for a few years to perhaps a decade. Nowadays, the average 65-year-old is on pace to live 20 more years. The program wasn't crafted to support a growing number of retired workers for two decades or longer. Or, put in another context, if increased longevity isn't dealt with, expanding benefits, let alone covering the estimated $13.2 trillion cash shortfall, could be difficult.
Furthermore, precipitous declines in birth rates over the past decade present another host of challenges. The Trustees report estimates a long-term average birth rate per woman of two for its intermediate-cost model. Comparatively, its high- and low-cost models have lifetime birth rates of 1.8 per woman and 2.2 per woman, respectively. In 2017, U.S. birth rates hit 1.76 per woman, representing a 40-year low. If birth rates keep falling, or even remain where they are now, the worker-to-beneficiary ratio a few decades down the road will worsen considerably, broadly widening the estimated cash needed to fill the gap between 2034 and 2092.
4. The votes aren't there in the Senate
And finally, let's just state the obvious: The votes aren't there to expand benefits.
Congress has two prominent political parties, and they couldn't possibly be further apart in their thinking of how to fix Social Security. Democrats have proposed taxing the rich and utilizing the CPI-E to close the funding gap and increase annual payouts. Meanwhile, Republicans on Capitol Hill want to see the full retirement age gradually increased to counter increased longevity, and the Chained CPI introduced in place of the CPI-W. Utilizing the Chained CPI would mean even smaller COLAs than seniors are receiving now.
Put another way, Democrats would approach resolving Social Security's issues through increased taxation, whereas the GOP would aim for long-term expenditure cuts. With 60 votes needed in the Senate to pass Social Security reform, and neither party having a supermajority of 60 votes since 1979, passing unilateral legislation for either party is basically off the table.