Bernie Sanders’ Social Security Plan Won’t Work

By on February 22, 2016 in Retirement with 9 Comments
Image of Bernie Sanders

Democratic presidential candidate Senator Bernie Sanders (I-VT)

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Like him or not, Senator Bernie Sanders (I-VT) is the most visible politician on the issue of Social Security.

His energy on the matter has pushed Hillary on the issue, and I am confident that over time will force the GOP to engage him as well. The man has a plan, one that he claims carries a seal of approval from the actuaries of the Social Security Administration (“SSA”).

The problem with visibility is that it invites scrutiny. His plan doesn’t work on a good day. More troubling is the gap between the results of his plan and the reasoning for it. His plan does the exact opposite of what he is suggesting.

Senator Sanders promises voters that his proposal will “extend the solvency of Social Security for the next 50 years.” The statement is crafted around data that has been gerrymandered to conceal the fact that Sanders’ worst case scenario is actually the most optimistic assessment of a fairly favorable economy – which is not assured.

As an illustration, the Sanders’ campaign site promotes that Social Security has a $2.8 trillion surplus that “can pay every benefit owed to every eligible American for the next 19 years.” The system’s ability to pay actually depends on the economy, not the surplus.

The Trustees of the Social Security Trust Fund actually say that the program’s ability to deliver scheduled benefits for 18 years is about a coin flip. The Congressional Budget Office predicts that the system’s capacity for scheduled benefits is about 13 years.

Even if the economy cooperates, the SSA’s forecast overstates the revenue that his plan will generate. The evaluation provided by the SSA assumes that tax changes take place well before Senator Sanders could take office in 2017. The fact is that revenue from Sanders’ proposal cannot not start flowing until he can convince House and Senate Republicans that his proposal is good policy. That process will drag well into 2017 at best.

Even so, what does 50 years of solvency mean to America? Solvent for 50 years means that a typical 35 year-old will enter retirement in the exact same position as the new retiree does today. At full retirement, today’s younger worker will expect to outlive scheduled benefits, unless politicians can sell the greatest accomplishment of government to a new set of younger workers who expect to lose money on the system.

In other words, 50 years of solvency is the cost to make the problem of Boomers an even larger problem for their children. 75 years of solvency is the cost to make the problem of voters a larger problem for non-voters. Solvency is the definition of kicking the can, where we are only haggling about how far the can is kicked.

Senator Sanders says that these changes are necessary to ensure that “everyone in this country can retire with the dignity and respect they deserve.” In response, his plan promises to “expand benefits by an average of $65 a month.”

Sounds good, but the $65 average is actually weighted towards spending on wealthy retirees rather than poor ones. Research from the Third Way shows that the vast majority of the increase would go to higher-earning retirees. Sanders’ incremental revenue would go $5 to $1 for wealthier retirees relative to those in need.

The reasoning for the imbalance is simple. Changes to the CPI will disproportionately reward seniors with the highest level of benefits. Sanders’ plan provides nothing to the 1/5th of seniors in the lowest income quintile who are not eligible for the program.

The Sanders’ campaign has not advertised that his reform ends Social Security for wages above $250,000. This change is structural, and breaks the relationship between contribution and benefit that has served as a foundation of the program since its inception.

“This provision applies the OASDI payroll tax rate to earnings above $250,000 in 2016 and later. The $250,000 level is a fixed amount after 2016 and not indexed to the average wage increase.”

~ Stephen C. Goss

Today, phasing-out Social Security at $250,000 sounds reasonable because the sum seems like a fantastic amount of money. The problem is that as wages rise, the scope of the economic dead zone increases in size.

What does this scope creep mean to a 25 year-old today? By the time he reaches 55, the dead-zone would affect the type of worker who makes roughly $90,000 today if wage growth mirrors the last 30 years.

Here is Sanders’ plan: He wants to divert roughly $11 trillion in tax revenue from debt control to Social Security. Instead of using that revenue to shore-up the system’s long-term finances, he intends to spend $3.4 trillion on current retirees – primarily wealthier ones. His changes might well end Social Security as we know it for younger workers, and make the system subject to the damn politicians that FDR feared.

You may like Sanders a lot, but there is nothing in his words or his plan that suggest he understands the financial challenges or even the mechanics of the system that he claims to save.

© 2016 Brenton Smith. All rights reserved. This article may not be reproduced without express written consent from Brenton Smith.


About the Author

Brenton Smith (A.K.A. Joe The Economist) is the founder of “Fix Social Security Now” which provides information on all alternatives in the public debate on Social Security through its site www.FixSSNow.Org.