In my March 24 Verdict column, “Social Security Will Be There When Today’s Young People Retire,” I took Republicans to task for trying to mislead young Americans about the future of Social Security. As I explained in that column, the Social Security system—even if the law remains completely unchanged moving forward—will provide important benefits for retirees into the indefinite future. Social Security will be there in 2030 and 2060 and 2090, continuing to provide support for future retirees, unless Republicans can convince young people to act against their own interests and destroy the system now.
In today’s column, I will briefly summarize the mechanics of the system before turning to the larger questions of whether the Social Security debate is all merely a matter of rhetoric, and whether Republicans are no more guilty than Democrats of misleading people about Social Security for partisan ends.
The bottom line is that much more than rhetoric is at stake. Republicans are simply not telling the truth about how the system works or about the consequences of the economic path that the country follows over the next few decades. Moreover, what the Democrats are saying about Social Security is honest and accurate. On this issue, at least, the dishonesty is entirely one-sided.
This partisan divide has consequences for the real lives of America’s young people. If they listen to Democrats, they can help to support and even strengthen a fundamentally strong system such that it will provide a decent retirement for themselves, their parents, and their children. If they respond to the Republicans’ campaign of stoking fear, however, then they will make their own lives much harder in the false hope that they will somehow make their Baby Boomer parents pay for their supposed sins. Young people should not play into the Republicans’ partisan effort to incite intergenerational conflict.
The Social Security System As It Is and Can Continue to Be
In my March 24 column, I used information that the Social Security trustees publish each year, as well as information that the trustees provide online at ssa.gov, to describe how the system works. Based on that information, I created a hypothetical young person, whom I called Chelsea, who takes a job paying $40,000 this year. Chelsea’s future Social Security benefits will depend on the path of the economy (or, more specifically, the path of wages) over her lifetime.
The outer boundaries of Chelsea’s inflation-adjusted monthly retirement benefit, if she retires at the full retirement age of 67 in 2058, are $1,117 and $1,573. But that is only if she never receives a raise for her entire working life. As I noted, if she receives even a one percent annual raise, her full retirement benefit will be between $1,512 and $2,130.
How, then, can Republican presidential candidates and their leaders in Congress keep up a constant drumbeat saying that Social Security is “not going to be there” long before today’s young people are ready to retire? Why do so many young people think that they are more likely to be hit by a meteor than receive any Social Security benefits? How, in other words, can any politician describe a system that would pay Chelsea at least $1,117 monthly in retirement benefits (and perhaps much more) as bankrupt, not able to pay even a penny to future retirees?
Crying “Bankruptcy” Is Not Mere Rhetoric
Republicans know that people who hear words like “bankrupt,” “insolvent,” and “flat broke” applied to Social Security will conclude that the retirement system will completely disappear. Although the Republicans deserve to be called out for misusing those words, their error is not something that one can merely dismiss as verbal excess. Their words amount not to rhetorical shading but to a concrete prediction of a real event. Will Social Security make payments to today’s young people when they retire? Unless Republicans succeed in their efforts to dismantle or diminish Social Security, the answer will always be yes.
The existence of the Social Security trust fund has generated a great deal of misunderstanding. Is there anything “in” the trust fund, or is it (as former President George W. Bush described it) just a bunch of meaningless pieces of paper? And if the trust fund is not actually vaults full of cash or gold bars, what is it?
The simple reality is that the Social Security trust fund is, as it was supposed to be, a mechanism for keeping track of all of the extra payroll taxes that Baby Boomers paid into Social Security during their lifetimes. By “extra” taxes, I mean taxes that were collected above and beyond the amount that would have been necessary to finance the system’s benefits while Baby Boomers have been working, to the tune of some $2.7 trillion in total.
Why did the system overtax Baby Boomers? Doing so allowed the government to borrow less money from private investors, resulting in a lower national debt than we would otherwise have built up. We did that, in turn, to allow the economy to build up a bigger productive capital stock than it otherwise would have. As the Baby Boomers now begin to retire, their children and grandchildren are inheriting an economy in which they are more productive than they otherwise would have been, which allows them to support the Baby Boomers in their retirement.
In other words, the trust fund amounts to something like society’s “note to self”: “Don’t forget that the Boomers paid more money into the system so that they could draw it out when they are retired.” If that drawdown happens slowly enough, the future benefits will be at the higher end of the range that I described above. If it happens more quickly, then the system’s payouts will be toward the lower end—but still far above zero.
Reality and Rhetoric and the Desire to Believe that “All Politicians Lie”
One can certainly get tied up in knots trying to describe the trust fund. On this, there actually has been bipartisan silliness. Former President Bill Clinton and Vice President Al Gore constantly referred to the trust fund as a “lockbox,” for example. That truly was a matter of rhetorical excess that was clearly designed to make people think that there was a place where “their money” awaited them.
That rhetorical framing, however, did not deceive people about the future of the system or about how the system’s payouts would work. It was apparently an attempt to make people feel comfortable with a complicated financial and accounting concept. Even so, plenty of liberals at that time (myself certainly included) mocked the Democrats for using that rhetoric, because it frankly confused more than it clarified.
But again, whether or not one found the myth of the lockbox soothing, Clinton and Gore never said that Social Security’s taxes and benefits would work in a way that they do not. Those Democrats, at worst, said: “If you want to think about it in this simplified way, that’s great. The point is that the future of the system is set by law, and we can predict what people will pay in and receive.”
Republicans, by contrast, are saying (and saying and saying): “Because the trust fund might reach a zero balance someday, the whole system will fall apart.” That is simply false, and not merely as a matter of the words one chooses. No matter how one characterizes the trust fund, the system will (if allowed to do so) continue to pay benefits and thus support people in their retirements, for generations to come. The only question is how generous those benefits can be.
I grew up in a family of moderate Republicans. We knew that our side was not always as honest or straightforward as we might like, and we knew that the other side would shade the truth for partisan advantage, too. That is how any political system will inevitably work. What we never wanted to believe is that our side would be simply dishonest and would persist in that dishonesty, even in the face of contrary reality. Surely, political discourse would force both sides at least to stay within the bounds of plausible claims and counterclaims. Right?
Lifelong Republicans must surely wish to believe, therefore, that their party’s leaders are not simply deceiving the American public about Social Security’s future. Yet that is exactly what is happening. Plenty of people have noted that the Republican Party has been taken over by fact-unconstrained ideologues (see my most recent summary of some of their non-Social Security-related dishonesty here), and no one is quite sure how this happened.
Social Security is thus merely one among many examples of how my former party’s leaders are willing to say anything for partisan advantage. On this issue, and on many others, today’s Republican leadership has exploited our ingrained sense that one side of the political divide cannot be simply and completely wrong. That is especially unfortunate, because such instincts are based on an understandable desire to believe that a major party is not going to be deliberately and repeatedly dishonest. That understandable desire must, however, give way to reality.
The Possibility of Policy Changes Affecting Social Security, for Good or Ill
What is the honest policy discussion, when it comes to Social Security? The most important question is whether we should do anything in anticipation of the one-time disruption that would result if the trust fund were ever to become depleted.
Under current law, if the trust fund reaches zero, then benefits from that year forward would need to be reduced. (Actually, there is reasonable disagreement about that conclusion, with the possibility that the law will require full benefits to be paid. But that is a question for a different column.) In the scenario that the Social Security trustees view as the most likely, but that is probably too pessimistic, the trust fund’s balance will reach zero in 2034, at which point benefits would have to be cut by about 21 percent going forward.
That one-time change would affect people who, like me, will already be receiving benefits in 2034. For everyone else, like my hypothetical Chelsea, that one-time change would have no effect in 2034. What matters to her is the benefits that she will receive when she does ultimately retire.
To be clear, even that one-time change in benefits would leave future benefits higher than the worst-case scenario that I described above. Although Chelsea would not receive the $1,573 that she could have received if the economy had performed better, she would still receive about 79 percent of that amount, or $1,243, which is certainly better than the $1,117 monthly benefit if things had gone horribly awry. (Again, however, there is no scenario in which benefits are reduced to zero, or anything even close.)
Can we prevent even that reduction from the top benefit level? Even better, can we increase that top benefit level? Yes, and yes. The problem is that some of the methods for doing so are bad ideas. For example, failed presidential contender Jeb Bush argued that we should increase the retirement age from 65. As I noted in a Verdict column last year, Bush’s credibility was destroyed by his not knowing that the retirement age has already been increased. Even so, he is merely one of many Republicans who favor a further increase in the retirement age.
Yet, as I argued in that Verdict column, increasing the retirement age is simply a cut in benefits in a different guise—and a particularly blunt cut as well, eliminating the healthiest years of a person’s retirement. For people who are healthy and wish to continue working, we already allow delayed retirement under Social Security’s current rules.
In any case, although the benefits that people will receive under the current law—even the benefits under the worst scenarios—are significant and represent the difference between dignity and degradation in retirement, those benefits are hardly gold-plated. Especially now that traditional pensions are becoming extinct, and with growing income inequality making it nearly impossible for middle-class people to save on their own to supplement their Social Security benefits, it would be desirable to find ways to increase those benefits.
To provide higher benefits to future retirees would require a change in the law. In particular, it would require a method to finance those future benefits. One well-known fact is that eliminating the upper limit on salary and wage income that is subject to the Social Security payroll tax (currently $118,500 per year) would make it possible to avoid the one-time drop in benefits, because doing so would prevent the trust fund’s balance from reaching zero.
But that is only one of many possible changes. Yet another way to expand the funding of Social Security would be by taxing investment income (which is currently completely untaxed by Social Security) at the same rate as we tax wages and salaries. Many other possibilities exist as well, all of which would allow future benefits to go up, not down.
Which brings us back to politics. I would be the first to call out the Democrats if they were lying about Social Security. (I have never hesitated to criticize President Obama harshly, on a number of issues, over the years.) The happy fact is, however, that leading Democrats are telling the truth about Social Security, and they are directly confronting the realities faced by the system.
Both Democratic presidential candidates, for example, have said that they will oppose laws that would cut future Social Security benefits, which (as I noted above) necessarily means that they oppose further increases in the retirement age. Both have said that they will try to prevent the automatic cuts that would happen if the trust fund reaches zero, and both have said that they support increasing benefits in the future. Those policy commitments are honest and achievable.
Republicans, by contrast, are trying to scare young people into thinking that the Social Security system will take their money while they are young and then fold up its tent before they retire. The policy goal is apparently either to cut Social Security benefits or to privatize the system. Those policy commitments are also achievable, but because they are unpopular and easy to attack, Republicans have chosen to push their policy agenda dishonestly.
Younger voters (and older ones as well) should take note.