Forbes Post, “Against Social Security Anti-Chicken-Little-ism”

Originally published at Forbes.com on June 6, 2018.

The latest Social Security Trustees Report was released yesterday, and, really, there was nothing remarkable about it.  It reports on the same trajectory towards Trust Fund depletion and the system’s subsequent inability to pay promised benefits, as in prior reports.  But one item that is striking is the insistence of various pro-Social Insurance advocacy groups that, not only is Social Security, and, indeed, the entire system of Social Insurance, in good health, but this demonstrates that it’s entirely appropriate to expand the generosity of the system.

Here’s the advocacy group Social Security Works:

The most important takeaways from the 2018 Trustees Report will be that (1) Social Security has a large and growing surplus, and (2) Social Security is extremely affordable. At its most expensive, Social Security is projected to cost just around 6 percent of gross domestic product (“GDP”). Indeed, in three-quarters of a century, Social Security will constitute just around 6.17 percent of GDP. . . .

The report will show that Social Security is fully and easily affordable. The question of whether to expand or cut Social Security’s modest benefits is a question of values and choice, not affordability. Indeed, in light of Social Security’s near universality, efficiency, fairness in its benefit distribution, portability from job to job, and security, the obvious solution to the nation’s looming retirement income crisis, discussed below, is to increase Social Security’s modest benefits. . . .

Moreover, expanding Social Security not only addresses the retirement income crisis, it also is part of the answer to growing income and wealth inequality and the financial squeeze on working families. Expanding, not cutting, Social Security while requiring the wealthiest among us to contribute more – indeed, their fair share – is the best policy approach to addressing these challenges while restoring Social Security to long-range actuarial balance.

The group then spends the remainder of this “backgrounder” making the claim that Social Security is, all things considered, in good financial health:  they write, for instance, that “Social Security is fully funded for the next decade, around 93 percent funded for the next 25 years, around 87 percent funded over the next 50 years, and around 84 percent funded over the next 75 years.”

And their message is repeated by others who decry those worried about the system as nothing more than Chicken Littles.

In fact, their statement about the small size of Social Security as a percent of GDP is deceptive.  Social Security taxes, based on present law, remain low, but this has no relationship to the degree to which Social Security’s actual benefits, as defined in present law, are “affordable” because the only reason why this 6% of GDP projection is true year after year is that, according to current law, when the Trust Fund ends, benefits will be cut to the degree necessary to be able to pay them from incoming FICA taxes, a benefit cut of (based on current projections) 23%, as Social Security Works acknowledges.  In fact, this oft-repeated statement, that Social Security will only be able to pay out 77% of benefit, is itself misleading as this figure, too, changes over time:  immediately upon depletion of the Trust Fund, in 2034, FICA taxes will be sufficient to cover 79% of promised benefits, but at the end of the 75-year projection period, in 2092, this drops to 74% due to changing demographics, and that’s, again, based on the assumption, as with the prior year’s report (and discussed separately here) that fertility rebounds from its current low level to a more usual 2.0 children per woman, which may or may not happen.  If fertility remains low, benefit cuts will be harsher.

I will also remind readers that Social Security is only one piece of the overall question of an aging America.  Add in Medicare and all of the other programs of government support to the elderly, and we’re looking at a projection that as early as 2046 we’re looking at government spending on the aged at nearly 30% of GDP.  And I am skeptical of easy answers like asking the “millionaires and billionaires” to “pay their fair share,” because any such new tax revenue (besides being wholly outside the international norm for how one runs Social Insurance programs) has to compete will all manner of other spending priorities.

There is not an easy answer.  And such answers as there are connect together Social Security with a whole constellation of related issues around health care, improving the well-being of the elderly, the economy and working life.  But the current tactic among various advocacy groups to claim that there’s nothing wrong with Social Security (that a tax hike can’t fix, anyway) is worrisome.

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.