The Social Security trustees have been forecasting the program’s future for decades, and generally little changes from year to year. 2021 is unlikely to be a normal year. This year’s report is apt to deliver a please-return-to-your-seat type of economic turbulence.
Keep in mind, the new numbers will be different compared to last year’s report. Back then, the trustees produced a report that assumed that COVID didn’t exist. As a result, the program is closing in on another year of financial records. It has collected beaucoup revenue, and is currently boasting historic reserves in its Trust Funds. In the 4th quarter alone, revenue is up nearly 7.5%. That isn’t just record breaking; those are blow-out numbers. As far as Social Security is concerned, the economy is booming, and unemployment is scant.
With no news, Social Security has been a vacant topic for a year.
That picture will change with the release of the next Trustees Report, which will incorporate the impact of COVID. That forecast should show that program revenue is actually struggling against the effects of a pandemic that has shuttered businesses and sent millions to the unemployment line. The latest estimate from the SSA says that Social Security will owe the general fund about roughly 100B for overpayment on payroll taxes in 2020.
That expense is going to hurt the program – and Congress has not mentioned a word about it.
More importantly, that coming forecast will revise all of the assumptions on which the program’s future is judged. As assumptions change, the size of the problem will grow, and the efficacy of existing policy options will shrink.
To illustrate, the Social Security 2100 Act will no longer keep the program solvent until 2100. This means that President-elect Biden has a much tougher job than anyone on his campaign has envisioned.
Biden promised to put the program on a pathway to solvency by asking Americans with especially high wages to pay more. According to policy experts, the revenue side of his plan is a standard policy option – E2.13).
So how did this idea perform the last time wage growth fell?
Back in 2019, this concept would have solved the problem for 16 years. A year later, the solution only added 9 years because in 2020 the trustees lowered their expectation of wage growth1. If COVID reduces wage growth, this policy option will do even less towards solving a bigger problem.
What Happened To Joe Biden’s Revenue Plan When Wage Growth Falls
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As you have read in this space before, there is a significant gap between the public’s expectation of the problem and the reality. As I have said in the past, crisis does not form out of bad things happening. It is a behavioral response to unexpected things happening.
Over the past 40 years, Social Security has been largely insulated from public scrutiny because the consequences of the financial imbalances appear to be far away, and for the time being the public believes that the solution can be crafted that does not affect them as individuals. 2021 report is apt to disrupt the picturesque view.
To illustrate, here is the AARP’s policy page on Social Security. It has one post in over 2 years. It is mainly a beautiful front-page backed by vacant links. That webpage illustrates how far the program has drifted from the public conscience. Imagine that one day, AARP and its members wake to the possibility that the solvency of Social Security has been cut in half. That is the forecast of the Bipartisan Policy Commission. While I don’t necessarily buy into that estimate, it is the type of number that would wake even the most docile senior.
About a year before the pandemic hit, I wrote “In the near term, though, the greatest threats to Social Security come from outside of the system. These are the events that do not appear in the trustees forecast.” Obviously I didn’t know about COVID, but it is the type of event with the ability to deliver the type of shock and awe numbers that shakes the public’s confidence in the system.
At that point, politicians will say gee we just couldn’t see this coming, and the finger pointing will start.
1. In 2019, Congress repealed the caddy tax that was enacted under the ACA. The Trustees believed that taxing on high-value healthcare plans would push money to move out of non-taxable healthcare plans into taxable wages.