With very little fanfare Social Security turned 75 last week. Sadly, I seriously question whether it will be around for my 75th birthday. The recent birthday gave talking heads on both sides of the aisle reason to weigh in on the economic health of the program. The dichotomy is fascinating. When it comes to Social Security it seems you join one of two camps: the Harry Reid “Social Security is the most successful social program in the history of the world” camp, or the Paul Ryan “unless reformed, our largest entitlement programs [such as] Social Security will go bankrupt” camp.
Those are two wildly disparate positions. Either the program is completely fine or completely screwed. So which is it? Let’s just say I’m happy to take the Democrats’ campaign bet, as described by my bloleague Robert Schlesinger in a post on Saturday. In the article Schlesinger argued that Democrats are smart to turn their messaging focus to Social Security because Republican ideas about the program stand in contrast to what the majority of mainstream Americans want.
I must respectfully disagree. Fortunately, I tend to think that the majority of Americans, and especially young adults, will be on my side. A recent Gallup poll found that 60 percent of people do not believe that Social Security will be able to pay them benefits when they retire. Young adults are even more pessimistic about Social Security’s future, with only 22 percent believing the program will survive until their retirement. The perception of looming default leads 77 percent of people to say that the current state of the Social Security system can be described as “in a state of crisis” or “has major problems.”
For a point of comparison only 73 percent of people felt the same way about the U.S. healthcare system in 2007. Democrats coasted to victory in 2008 largely because of their promises to reform a healthcare program that fewer people agree is broken than Social Security. And somehow Democrats believe that they are on the right side of this issue?
Of course, I’ve obviously omitted something in the discussion to this point, namely, the party’s actual solutions. The odd situation described above could easily be explained away if Democrats’ answer to the problem was clearly superior to Republicans. But insofar as I can tell Democrats have no plan. (Author’s note: Is anyone else catching onto the inverse parallel between Democrats on Social Security and Republicans on healthcare?)
Rather than come up with a plan to fix it, Democrats are content to argue that the program is actually fine. They argue that Social Security has been running surpluses since its inception and has been collecting and depositing that money into a trust fund. Even if there are some looming deficits, the argument goes, any real problems are far off because we can always just dip into the program’s cash reserves.
Republicans paint a completely different reality. They argue that increased life expectancy, the looming retirement of baby boomers, and flat revenues will soon cause the program’s finances to drown in red ink. They point to the fact that when Social Security was passed the average recipient lived 14 years beyond becoming eligible for benefits. Today the average recipient lives 18.5 years beyond Social Security eligibility. The nonpartisan Congressional Budget Office tends to agree that these factors will become a problem sooner rather than later. As CBO director Douglas Elmendorf wrote:
[A] longer-term decline in the trust funds’ financial condition is inevitable under current law, because the retirement of the baby-boom generation will cause benefit payments to increase more than revenues. CBO anticipates that a primary deficit will return in 2016 and that deficit will reach $77 billion in 2020.
Don’t worry, we’ll just dip into this huge nest egg that Social Security has been building … right? Wrong. As it turns out, all the extra money Social Security has been pulling in from our paychecks hasn’t been stashed away, earning interest so that future retirees can rest comfortably. Instead, it’s a pile of government-backed IOUs sitting in a drawer at the Bureau of Public Debt in Ohio. The government has been engaging in a little bit of double counting, using Social Security’s surplus to mask the federal government’s annual deficit while also issuing the Treasury bonds to pay for future retiree benefits.
This means that beginning in 2016 the government will have to use its general revenue fund to pay off Social Security’s annual deficits. While this may not pose a risk to Social Security or its beneficiaries, it does add to the growing threat posed by our deficit. And we know how the general public feels about the deficit right now.
The enormity of the problem, both in terms of public perception and reality, is what should give Republicans like Ryan hope. They’ve got a plan. No, it’s not to privatize Social Security in its entirety (a myth perpetrated by President Obama and cast aside by Factcheck.org). They offer Americans a choice. You can either remain in the current system or you can choose to invest a portion of the payroll tax into a mutual fund managed by the U.S. government. Members of Congress and federal employees already have this option through their Thrift Savings Plan.
But what may truly save Social Security is a focus on reducing our budget deficit. Given that there is no true Social Security Trust Fund, paying our obligations to seniors will ultimately rely on the financial health of the federal government. Here again Republicans have laid out multiple plans to eliminate our annual deficits and begin paying off our national debt (see here, here, and here).
Social Security’s birthday has come and gone. The candles have been blown out and the guests have gone home. But don’t be fooled this campaign season--the problems remain.