Last May, Rep. John Larson (D-Conn.), who chairs the House Ways and Means Social Security Subcommittee, predicted that the economic fall-out of COVID would focus voters on Social Security and pressure Congress to fix the troubled program after decades of inaction. He exclaimed: “This is going to get people’s attention!”
Larson was talking about the dire predictions that Social Security would shed years of solvency as a result of the economic fall-out of the pandemic.
Wagering on voters, much less Congress, to focus on Social Security is a sucker’s bet. We have now had 12 debates between candidates who want to be president without a single question about the stability of a program on which millions depend.
In case you missed the important point, let me repeat: the program on which millions depend. Another important point: the passage of time is kryptonite to the program.
COVID alone should produce questions for those who want to be president.
- Projections from outside of the Social Security Administration indicate that the program will run short of funds years earlier than expected, and may be as soon as 2028.
- People turning 60 this year face brutal benefit reductions because of the way Social Security calculates the benefit check.
- The cash management system of the program threatens to cost the program tens of billions as a result of policies and procedures that date back to the era of black and white TV.
At this point, there is no indication that the candidates are aware of these issues, much less have a response.
Trump doesn’t list the issue on his website. Biden, on the other hand, promises to put the program on a “path to long-term solvency”, but provides no detail on what that path might look like. In a nutshell, voters have no questions, and candidates offer no plans.
I am guessing that Trump intends to replicate his hands-off approach from 2016. That strategy seems to have served him well at the ballot box.
Unfortunately, it worked out much less well for future retirees. Since he arrived in Washington, the program has created $5 trillion of promises for which the system does not expect to generate cash. People who are now 72 expect to live long-enough to feel the impact of Trump’s no-touch policies.
Just for a benchmark, Trump has called 2.3 percent GDP growth “tremendous growth”. At the same time, the unfunded liabilities of the program have grown in excess of 10%. In other words, the size of the hole is growing at more than 4 times our ability to fill it. That is what Trump means by protecting Social Security.
Biden’s commitments are troubling because his home page suggests the plan is to spend money now, and raise taxes later. To be fair to both candidates, that approach hasn’t worked out well either.
Here is the analysis that I have seen:
“Based on the Trustees and Chief Actuary, we think that alone will close 60% of Social Security’s solvency gap. But half of that money will go to pay for new benefits, so on net he’d close 30% of the gap.”
Before you cast your early-ballot for Biden over his plan to address Social Security, understand that the Trustees assume that COVID doesn’t exist, and the economy is teeming with jobs with rising wages. Essentially, Biden’s plan would close 30% of the gap in a world that doesn’t exist.
Here is what Biden says on revenue:
“The Biden Plan will put the program on a path to long-term solvency by asking Americans with especially high wages to pay the same taxes on those earnings that middle-class families pay.”
~ The Biden Plan for Older Americans
Giving Biden the Benefit of Doubt
From what I have read in the media, Biden’s plan calls for the phase-out the wage cap over roughly 25 years as wage-growth closes the hole between middle-class and $400,000. The most chartable examination suggests that this revenue would postpone insolvency by less than a decade, see (SSA’s scoring). That means not spending a penny on expanding the program.
That is as good as it gets.
The Doubts
Spoiler Alert: the next trustees report will acknowledge that COVID has caused wage-growth assumptions to slow. This means that the revenue for Biden’s proposal will come-up far short of expectation. It also means every proposal that depends upon eliminating the wage cap will come up short of current projections.
The amount of money that will go to pay for the new benefits is probably more problematic because very little of the Biden plan is available at the Social Security Administration. To illustrate, Biden says that he would like to set-up a minimum benefit for those who have worked for 30 years. Unfortunately, the Social Security Administration (SSA) provides guidance only for proposals which exclude existing seniors.
Combined, there is nothing to suggest that the Biden plan would not spend every penny of taxes that it raises. It is entirely possible that his proposal would push the program to insolvency faster because the spending occurs today, whereas the incremental revenue arrives over time.
Biden’s plan has a significant downside. When we arrive at insolvency in 2044, the crisis will occur after the policy option of removing the cap has been used. Candidate Biden wants to use the last major pool of tax resources to increase spending on current retirees knowing full well that future retirees will have to absorb the brunt of the pathway he hasn’t cleared.
Vote for one of these guys because they are in your party. Vote for them because they have great hair and sharp smile. In terms of Social Security, neither is going to help you.
