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The Blunt Reason Congress Hasn't Fixed Social Security

By Sean Williams – Sep 21, 2019 at 6:06AM

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Hint: It's not for a lack of proposals.

For eight decades, Social Security has provided a financial lifeline to retired Americans. As of July 2019, 63.6 million people were receiving a monthly payout from the program, of which 70% are retired workers. Of these retirees, 62% rely on Social Security for at least half of their income, and more than an estimated 15 million are being lifted out of poverty.

Yet, this financial lifeline is in trouble -- and Congress has known this for quite some time.

A golden key lying atop two Social Security cards.

Image source: Getty Images.

Social Security has a $13.9 trillion problem

Every year, the Social Security Board of Trustees releases an all-encompassing analysis of the program that examines how it performed, financially, over the previous year, as well as forecasts its outlook over the short term (10-year period) and long term (75-year period).

In the latest update, the Board of Trustees has called for a shift in the program beginning next year. After generating a net-cash surplus every year since the Amendments of 1983 were signed into law, Social Security is expected to see a net-cash outflow in 2020 and beyond. A number of ongoing demographic changes are expected to whittle away Social Security's nearly $2.9 trillion in asset reserves. By as early as 2035, this excess capital could be completely gone, leaving the program with a $13.9 trillion cash shortfall between 2035 and 2093.

If there is a bright side here, it's that there's zero chance of Social Security going bankrupt, short of Congress changing how the program is funded. Two sources of recurring income -- the 12.4% payroll tax on earned income and the taxation of benefits -- ensure that money will always be flowing into the program for eventual disbursement to eligible beneficiaries.

The downside, of course, is that Social Security's dwindling asset reserves would signal the unsustainability of the existing payout schedule. Should lawmakers fail to act by increasing revenue to the program, reducing expenditures, or implementing some combination of the two, retired workers could face an up to 23% haircut to their payout by 2035. Again, that's a big problem when so many seniors rely on Social Security as their primary source of income.

A Democrat donkey and Republican elephant squaring off atop the American flag.

Image source: Getty Images.

Here's why lawmakers haven't pushed to fix Social Security

For their part, lawmakers on Capitol Hill acknowledge that a problem exists with Social Security's long-term outlook. And yet, nothing has been done to resolve this situation in 36 years (and counting).

Why, you ask? The blunt reason is that any Social Security "fix" is going to make at least some group of folks worse off than before and, mostly likely, will cost the party in power votes in an upcoming election when the fix is implemented.

Take, for example, the Democrats' core approach to resolving Social Security's cash shortfall. Most Democrats in Washington have supported the idea of boosting revenue for the program by raising or eliminating the payroll tax cap, which is set at $132,900 in 2019. All earned income (wages and salary) between $0.01 and $132,900 is subject to Social Security's 12.4% payroll tax, with any earned income above this amount exempt. Between 1983 and 2016, the amount of earned income exempted from this tax has nearly quadrupled from just over $300 billion to $1.2 trillion. At $1.2 trillion, almost $150 billion in potential payroll tax revenue is "escaping" each year.

By raising the payroll tax earnings cap, Democrats would be requiring that higher-income and/or wealthier workers pay more into the program. While this would provide an immediate boost in revenue for Social Security, it might also cost Democrat lawmakers valuable political contributions come election time, as well as the votes of well-to-do workers.

On the flip side, Republicans have proposed reducing the long-term costs of the program by gradually increasing the full retirement age from a current peak of 67 to as high as 70. In doing so, current and near-term retirees would be protected from any benefit cuts, but future generations of workers would see their lifetime benefits reduced. That's because they'd either need to wait longer to receive their full monthly payout, or they'd have to accept a steeper monthly reduction by claiming early.

Should the GOP get its way, it's very possible that it could cost the party votes from millennials and Generation Z in an upcoming election.

In other words, every fix creates a loser, and that loser could mean the difference between winning or losing an upcoming election. That's the blunt truth.

Two Social Security cards lying atop a fanned pile of cash.

Image source: Getty Images.

We need both parties to work together

The sad reality, though, is that nothing is going to get done on the Social Security front until both parties learn to compromise with one another and find common ground. The truth is that both of the core proposals work, with each bringing something to the table that the other does not.

For example, the Republicans' fix fails to quickly address Social Security's imminent cash shortfall. Sure, it reduces long-term expenditures, but it takes many decades to do so. This means the Democrat resolution of boosting revenue via taxation is imperative to addressing the shorter-term issues Social Security will face.

Meanwhile, the Democrats' proposal fails to take into account factors like increasing longevity and persistently lower birth rates. In effect, it ignores the longer-term problems that the GOP's cost-cutting proposal would tackle.

Not only do these ideas work much better together than separately, but bipartisan cooperation is a must if anything is going to pass in the Senate. Amending Social Security will require 60 votes of support, and it's been 40 years since the Senate saw a supermajority of 60 (or more) seats for either party.

Bipartisan cooperation is a must if any Social Security reform is to happen.

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