Sen. Mitt Romney (R-UT) along with Sen. Joe Manchin (D-WV) introduced bipartisan legislation earlier this month intended to “shore up our federal trust funds and put us on a path toward a stronger fiscal future.” S-1295 is more commonly known as the Trust Act.
According to Romney’s site, this legislation would determine which trust funds are endangered. For each at-risk trust fund, the proposal would create a bipartisan 12-member rescue committee, which would have 180 days to draft legislation that would stabilize that program’s long-term funding. The resulting prospal would receive expedited consideration in both chambers.
The question is whether this proposal would accomplish anything. Based on media reports, it seems that policy pundits tend to see a lot more substance here than I do. Conservatives tend to see this legislation as a step in the direction of fiscal sanity; whereas Liberals tend to see this proposal as a trojan horse hiding massive benefit cuts. I just don’t see it – particularly in the case of Social Security.
Keep in mind, this concept sounds a lot like the National Commission on Fiscal Responsibility and Reform, or Simpson Bowles. Back in 2010, President Obama authorized a committee to come up with a plan to reduce the nation’s dependence on debt. After six months, the committee had produced a plan, but could not build the required consensus amongst itself much less the nation as a whole in order to get Congress to consider the proposal.
In terms of Social Security, the committee agreed on a simple principle: our kids will pay more in taxes than we do, and will absorb the massive benefit cuts that we will not even consider. According to the Social Security Administration’s analysis of that plan, the benefit cut applied to a middle income worker would have risen from 1% to 19.2% over the course of the evaluation period. Mind you, these reductions come on top of benefit cuts dating back to 1983 that will reduce benefits or these retirees by nearly 25% according to a report from the National Academy of Social Insurance. “The cumulative effect of these cuts is that by 2050, benefits will be 24 percent lower, on average,” states the report. The plan is to give our children less than we take.
As unappealing as that prospect might sound, the passage of time has largely obsolesced the Simpson Bowles plan for Social Security. The size of the problem we face has nearly doubled, while the efficacy of the remedies has declined. So if the sound of 19 percent benefit reductions sounds drastic, you need to realize that today 19 percent is practically the open bid – for everyone.
This highlights the Achilles Heel of Social Security: the passage of time. It is basically financial cancer to the system. Last year, moving the evaluation date forward by one year cost the system $600 billion (rising from 13.9 to 14.5 because the evaluation year changed). It will do the same this year. So in the 3 minutes you spend with this piece, the program will create more than $3 million in promises that no one expects it to keep. Of course, these estimates assume that the economy is growing rapidly – and it isn’t.
To further illustrate the cost of doing nothing, President Trump promised to protect Social Security. Over his first three years, the unfunded liabilities of the system rose more than the system collected in all forms of revenue. So when politicians talk about Social Security, the sound is not much different that of termites eating away the foundation of your house.
But we do not have politicians talking today about fixing Social Security, we have politicians talking about talking about Social Security.