The 2024 edition of the annual report of the Social Security trustees was released on May 6, 2024, and its conclusions are sobering.
If corrective action is much further delayed, continued solvency will be for all practical purposes unachievable, meaning that the current design of Social Security will need to be abandoned. If that happens, it will not be because Americans signaled a desire to scrap Social Security’s current structure, but because lawmakers dithered past the point where repairs could fix the problem.
This would be a scandalous abdication of public responsibility.
Currently, roughly 21% of all scheduled benefits over the next 75 years are unfunded. But that number includes scheduled benefits for current recipients, which lawmakers have never cut.
Measured as a percentage of future benefit claims, the shortfall is larger — approximately 25% — and growing. Saying that 25% of future benefit claims are unfunded also understates the problem because there is no plausible likelihood lawmakers would cut benefits 25% across the board for everyone filing claims starting tomorrow.
In the real world, any changes would almost certainly be gradually phased in, meaning that the first cohorts affected might only have their benefits changed by a percent or two, with later cohorts who are fully affected experiencing changes far larger than 25%. These are far greater changes than Americans are currently being told about, and the requirements only grow larger with further delay.
Brokering a solution requires fundamental value judgments. First, a judgment must be made as to whether Social Security’s historical design as a self-financing program is worth saving. If the answer is no, then lawmakers can simply avoid tough choices concerning benefit formulas and tax assessments, bail out the system with a massive infusion of general revenues and dispense with the historical design of Social Security as an earned benefit.
I would caution against such a move for several reasons.
First, it would be fiscally irresponsible, essentially adding Social Security’s large financing shortfall to the mushrooming national debt. Second, it would undermine the security and reliability of Social Security benefit payments, as the program would need to compete for financing each year from the general fund, and participants could no longer claim they paid for their benefits. Third, it would be a betrayal of the public trust, as Americans have given no indication that they wish to toss Social Security’s historical design overboard.
Assuming lawmakers make the value judgment that Social Security’s historical design is worth saving, the next value judgment involves striking the balance between the three approaches of increasing revenues, adjusting eligibility ages and moderating benefit growth. No plausible solution can rely on one mechanism alone.
This isn’t solely because bipartisan compromise will be required for political reasons. Even if one party controlled every branch of government, that party still wouldn’t be willing to do the entire job with one mechanism; the changes required are too large.
For example, doing it all on the tax side would require the equivalent of an immediate increase in the current payroll tax from 12.4% to 15.73%, something even Congress’ most liberal members would not likely assemble a majority to enact. Nor could even the most conservative members of Congress engineer a majority in favor of cutting all benefit claims, starting tomorrow, 25% across the board.
The time is long past when the problem can be realistically solved by either tax increases or benefit growth restraints alone. A reasonable place to start the discussion is to examine solutions that consist of roughly one-third tax increases, one-third eligibility age changes and one-third benefit growth restraints.
This is one reason why the current positioning of so many politicians is so deeply irresponsible.
Many members of Congress have declared that not only will they refuse to countenance any moderation of benefit growth or changes to eligibility ages, but they demand that benefits be increased above and beyond the automatic increases under current law.
This simply cannot work; not only because it is unreasonable to worsen the financial shortfall before fixing it, but because lawmakers are manifestly unwilling to raise taxes enough to close the current shortfall, let alone to fund a system where costs are ballooning even faster.
When both President Joe Biden and Donald Trump say they will not touch the growth of Social Security benefits, they are indicating that whoever takes the oath of office next January must either break his campaign pledges almost immediately or preside over the final throes of Social Security as we know it.
The 2024 Social Security trustees’ report depicts a system in mortal danger. There is still enough time to broker a bipartisan solution that saves Social Security, but it will require a fundamental reversal of direction by the political leadership of both major parties — and sooner rather than later.
Reprinted from May 9, 2024, edition of Discourse with permission.
Charles Blahous is a senior research strategist at the Mercatus Center at George Mason University and a visiting fellow with the Hoover Institution at Stanford University.
