Joyce: Don’t Undermine National Social Insurance
A letter to the editor against letting states take over Social Security
This is a guest post by Philip G. Joyce.
Dear Debt Dispatch:
As a frequent reader of your well-reasoned and top quality analyses of issues related to the solvency of federal finances, I read with interest the suggestion that the Social Security imbalance would be more likely to be solved if the program was turned over to the states (“Counterpoint: States Would be More Responsible With Social Security Than the Federal Government”). I can understand, given the failure of the federal government to solve the universally-predicted (and ultimately solvable) Social Security imbalance, why it is tempting to look to the states. States, after all, have generally demonstrated MUCH greater capacity to solve problems than the national government.
So what could possibly be wrong with letting the states have a crack at this? Let’s start with the headline, to which I would add only one word. That word is “some”, as in “SOME States Would be More Responsible…”. How do we know that? Because we know that the states have an uneven record of managing their own pension obligations. According to a report by Equable (a retirement policy think tank), while there are some states that have fully funded their pension systems, there are many more that have not. In fact, there were (as of June 2023) only nine states that had funding ratios (the extent to which cumulative state contributions exceed the actuarial estimates of promised liabilities) even in excess of 90 percent. The top four states, all of which had ratios in excess of 100 percent, were Tennessee, Washington, Utah, and South Dakota. On the other hand, there were TWELVE states with funding ratios under 70 percent. These included some (Illinois, Kentucky, Connecticut, New Jersey) with ratios under 60 percent.
What does this have to do with the proposal to have the states take over Social Security? It doesn’t take much imagination to wonder whether states that have chosen not to fully fund their own state pension systems MIGHT face the same challenges with Social Security. The end result would potentially be a system where Social Security payments, rather than being based on a universal funding formula, would differ based on the state(s) in which the recipient lived, or had lived while contributing. There are reasons, of course, why it might make sense for payments to differ by state, if those differences were based on variations in (for example) the cost of living. But independent of such analytical justifications, do we really want a system in which an elderly person in Tennessee receives a greater Social Security payment than the identical person would receive if they lived just over the border in Kentucky, simply based on Tennessee’s more responsible fiscal practices? This would seem to undermine the whole notion of a national social insurance program.
We should not let our frustration with the failure of our national leaders to act on this pressing national problem drive us to seek solutions that could fundamentally change the program in ways that are counterproductive and inequitable.
Philip G. Joyce is a professor of public policy in the University of Maryland School of Public Policy.