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Social Security: You Can't Always Get What You Want

By Sean Williams – Apr 25, 2019 at 7:06AM

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Three-quarters of Americans want Social Security benefits expanded, but that's probably not going to happen.

Among the many social programs in the United States, none bears more importance than Social Security. The nearly 84-year-old program is paying out a benefit check to 63 million Americans each month, with more than 90% of today's working Americans afforded long-term disability and/or survivors insurance protections.

Social Security is also singlehandedly responsible for keeping more than 22 million Americans, including 15.3 million retired workers, out of poverty. The average retired worker benefit of $1,467.17, as of March 2019, isn't a lot of money, but for the 62% of senior beneficiaries, it represents at least half of their monthly income.

Dice and casino chips lying atop two Social Security cards.

Image source: Getty Images.

Social Security's clock is ticking

Yet, this is also a program in crisis. Although Social Security is in absolutely no danger of going bankrupt, a number of ongoing demographic shifts are expected to wreak havoc on its asset reserves and payouts. These shifts, which include the ongoing retirement of boomers, increased longevity, growing income inequality, and lower birth rates, to name a few, are expected to whittle away Social Security's $2.89 trillion in asset reserves until complete exhaustion occurs in 2034, as estimated by the Social Security Board of Trustees. Should these asset reserves disappear, an estimated benefits cut of up to 21% may be needed to sustain payouts through the year 2092.

In terms of aggregate shortfall, the Social Security program will need $13.2 trillion in cash between 2034 and 2092 if it's to maintain the current payout schedule, inclusive of cost-of-living adjustments. Without this infusion, benefit cuts in some form look increasingly likely.

Knowing this, the American public has turned to lawmakers looking for answers. Of course, if you asked the public what they want, the answer is pretty clear: bigger benefits.

A smiling senior woman holding out a neat stack of cash in her hands.

Image source: Getty Images.

The public is clear: Expand benefits

A March poll from the Pew Research Center questioned a number of demographic groups about whether cuts should be made to the Social Security program for future beneficiaries in order to put Social Security on firmer ground. Of all the adults surveyed, an overwhelming 74% suggested that no cuts should be made, with 25% saying that some reductions will need to be made. Opposition to cuts was strongest (as you'd expect) with seniors aged 50 and up, since these are the folks who are either receiving benefits or have their retired worker benefit within sight. 

As you might also expect, Republicans were more favorable to reducing benefits to shore up Social Security than self-identified Democrats. That's because the core Republican proposal to fix Social Security involves gradually raising the full retirement age -- i.e., the age at which you become eligible to receive your full benefit, as determined by your birth year -- from a peak of 67 in 2022 to as high as age 70. Doing so would reduce the lifetime benefit potential of future generations, thereby saving the program money over the long run.

While the idea of expanding Social Security benefits has been expounded on numerous times, most recently by Democratic presidential candidate Sen. Bernie Sanders (I-Vt.) via the Social Security Expansion Act, and Rep. John Larson (D-Conn.) with the Social Security 2100 Act, it's simply not realistic. As the Rolling Stones said in their 1969 hit, "You Can't Always Get What You Want."

An elderly man in deep thought with his chin resting on the palm of his hand.

Image source: Getty Images.

Sorry, folks, but you can't always get what you want

To begin with, raising benefits would entail a substantial increase in taxation on the rich. This would be accomplished by increasing or removing the maximum taxable earnings cap associated with the 12.4% payroll tax on earned income. In 2019, this cap is set at $132,900, and an estimated $1.2 trillion in annual earnings is escaping this tax each year since all earned income above $132,900 is exempt. The argument here being that raising or eliminating the cap would allow the rich to pay their fair share like the other 90%-plus workers who pay tax on every dollar they earn.

But the problem with this thesis is that it ignores the fact that the rich are already paying their fair share. The reason the payroll tax cap exists is because Social Security also limits the amount it'll pay out monthly at full retirement age. This means if you earned $200,000 a year over your lifetime, or are a billionaire like President Trump, the most you can expect to be paid monthly is $2,861 at full retirement age in 2019. The tax cap exists because a payout cap also exists.

Another problem that isn't be considered by the public is the magnitude of some of the demographic shifts. Although I fully understand why three out of four polled adults don't want to see benefits reduced for future retirees under any circumstances, it ignores the fact that the average life expectancy has risen nine years since 1960, all while the full retirement age will have risen by just two years between 1940 and 2022 to age 67 from age 65. What had once been a program designed to buoy the elderly for a few years during retirement has transformed into a lifeline that 65-year-old retirees will lean on for an average of two decades. This is a big reason why raising the full retirement age is viewed as a logical puzzle piece to a larger solution.

A couple cradling their newborn baby.

Image source: Getty Images.

Building on this point, the decade-long decline in birth rates is also worth paying attention to. The long-term (75-year) model of the Trustees assumes an average birth rate of two children per woman over their lifetime. But birth rates hit 1.76 per woman in 2017 -- their lowest point in 40 years. If birth rates don't pick back up soon, the worker-to-beneficiary ratio will suffer more than forecast, and even added revenue may not fully account for the higher costs to come.

Also consider that tackling a $13.2 trillion problem is daunting. Curbing a shortfall of this magnitude through 2092, which could be done with an aggregate increase of at least 2.78% to the payroll tax (i.e., 12.4% plus 2.78%, or 15.18%), only keeps the payout schedule as is, inclusive of cost-of-living adjustments. If payouts are to be expanded, then well over $13 trillion in additional revenue would need to be raised over the next 75 years.

Lastly, it's worth pointing out that any sort of changes to the Social Security program are going to require bipartisan support, because neither party has had a supermajority in the Senate in 40 years. The GOP is vehemently opposed to increasing the payroll tax, which will likely doom any measure designed to generate substantially more revenue for Social Security.

The idea of increasing Social Security benefits probably sounds great on paper, but it's simply not practical right now.

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