Overdue for Change: Social Security at Age 87
Social Security's trust fund is a liability, not an asset
This past Sunday, Social Security – the single largest federal government program – turned 87 years old. The world has changed, but this massive federal program has not kept up with the times. Change is overdue.
When President Franklin D. Roosevelt signed Social Security into law on August 14, 1935, he referred to it as:
“a law which will give some measure of protection to the average citizen and to his family…against poverty-ridden old age.”
From a modest income support program, targeted toward individuals who lived beyond the age of life expectancy, Social Security now redistributes more than $1 trillion annually from working Americans toward those in retirement, despite the much greater wealth owned by retirees. And the program’s annual spending is projected to double to nearly $2 trillion over the next decade.
It will come as no surprise to anyone paying even the slightest bit of attention to how government works, that even modestly conceived programs tend to bloat far beyond their intended purpose. And as one of the longest running federal programs, Social Security has had plenty of time to transform from an old-age poverty program to a politically convenient entitlement. Congress should not delay on making the following commonsense changes:
Increase the Social Security eligibility age
Over Social Security’s lifespan, life expectancy at birth in the United States has increased by nearly 20 years. Yet, Social Security’s full retirement age has increased by only two years (from 65 to 67—to be fully phased in by 2027), and the early retirement age has not budged at all – despite significant improvements in health and lifespan. By encouraging individuals to retire sooner than they otherwise would, Social Security reduces labor force participation, which suppresses growth.
Congress should raise the early and full Social Security eligibility ages by 3 years each (to 65 and 70) and index both to increases in longevity.
These are both small and common-sense reforms that preserve the original goals of the Social Security system and reduce its burden on current and future taxpayers.
Focus old-age income support on those with limited means
Social Security provides income support to older Americans, regardless of need. This makes Social Security an entitlement program, rather than an old-age poverty program. The median net worth of working Americans aged 35-44 was $91,300 in 2019, based on the Fed’s latest Survey of Consumer Finances. Meanwhile median net worth among those 65 and older was nearly three times that. To the extent that the government provides income subsidies to retirees, it should focus them on those retirees with limited means to support themselves.
Congress should means-test Social Security, returning to the program's stated purpose of antipoverty protection in old age.
Reduce Social Security’s drag on the economy and budget
Contrary to wishful popular opinion, the Social Security trust fund is a liability, not an asset.
The $2.8 trillion in IOUs designated for the Social Security trust fund are part of the $30.7 trillion gross national debt (so-called intergovernmental debt). Congress immediately spent any surpluses the IRS collected (including from payroll taxes on workers’ wages) and deferred the cost of paying for Social Security to future taxpayers. Intergovernmental debt is quite the misnomer in this context. We're really talking about intergenerational debt, since it is current and future taxpayers who are on the hook for present government spending, including any debts government agencies incurred between each other (such as spending the taxes intended for Social Security on other government programs).
The trust fund is a legal accounting entity that holds no real economic assets. It only matters because there is a statutory provision that Social Security can continue running cash-flow deficits for as long as the trust fund accounting mechanism tracks a positive value.
It makes sense then to disregard the so-called trust fund and any interest it accrues, and only consider Social Security’s current cash in- and outflows to understand the program’s drag on the economy and the federal budget. By that accounting, Social Security spent $1001.9 billion in 2021, while collecting $875.4 billion ($838.2 billion from payroll taxes and $37.2 billion from taxes on benefits), for a 2021 Social Security deficit of $126.5 billion.
Covering the $126.5 billion cash-flow deficit that Social Security ran in 2021 added to the U.S. publicly held debt.
Congress should reduce Social Security spending by making the programmatic reforms specified above as well as other immediate tweaks such as indexing the program’s cost-of-living benefit adjustments based on the chained CPI.
Social Security makes up the largest portion of current federal outlays and will continue to grow as more eligible individuals retire and live longer in retirement. Congress needs to grapple with how Social Security benefits are structured and reform the program if it is to meet its original intent without unduly undermining workers’ prosperity and growth in the economy. The longer Congress delays, the more costly the adjustments lawmakers will need to make, and the less time and resources American workers will have to prepare, by saving and investing to best meet their own needs, now and in their old age.