You have probably read or heard that the Social Security trust funds will be depleted by 2033, based on the commonly cited “intermediate” actuarial projections. This is something of a simplification. The better characterization is that the Disability Income (DI) trust fund will be depleted by 2016, while the Old-Age and Survivors Insurance (OASI) trust fund will be depleted by 2035. OASI, of course, is what most of us think of as “Social Security”. The common 2033 date is based on the assumption that Congress will pass a law that transfers revenues from OASI to DI so they deplete at the same time.
(I should note that these dates are based on the 2013 Trustees’ Report, issued in April 2013. A more recent report by the CBO, issued in December 2013, reaches basically the same conclusions, projecting DI depletion in 2017, OASI depletion in 2033 and combined depletion in 2031. I will generally use the Trustees’ Report, because it contains more information overall and because it aligns with various additional analyses that I will also be citing.)
What really surprises me is the lack of widespread alarm regarding these projections. I think the public would be quite alarmed if it understood the impact of trust fund depletion if no laws are changed. For DI, it means that in two or three years the benefits for all projected 11 million DI beneficiaries will be reduced by about 20%, to the level that can be supported out of current payroll taxes. Are these 11 million Americans aware of this? Has anyone informed them? Are they besieging their reps and senators? It is certainly not making the news.
More below.
The DI issue could explode in the next two years, but let’s assume Congress quietly defuses it with a revenue shift. The bigger picture is OASI. Based on the standard assumptions and a common depletion date and no other changes to the law, the OASI and DI benefits will be reduced by about 23%, in less than 20 years. This reduction will impact all beneficiaries, not just new beneficiaries. No one will be “grandfathered”. 2033 is simply not that far off, and there are projected to be 88 million combined OASI and DI beneficiaries.
Indeed, based on the Trustees’ “high cost” actuarial projections, the combined depletion year is 2027, only 13 years from now. Why is everyone so complacent? What if an asteroid was projected to hit the earth in as soon as 13 years? Wouldn’t the public demand action?
Admittedly, different people will be impacted differently. But let’s just examine the projected impact on the Fox News demographic – white people who are already age 65 and older and already on Social Security. Back in 2010, this population was 30 million people (17 million women, 13 million men). Social Security accounted for more than 50% of total income for 56% of this population and it accounted for more than 80% of total income for 33% of this population. A more recent study should be released soon, and I will only be surprised if the statistics indicating material reliance on Social Security do not increase. This group knows how to be politically vocal. What happens when this population understands that they will be impacted, along with everyone else? I am sure most of them will want this huge benefit cut prevented, “whatever it takes”. Republican leadership has to be in a quiet panic about this, wondering when their base will catch on to what it happening and start demanding a remedy.
From what I have seen, the Republican approach to placating this population is assure that current beneficiaries will be grandfathered. However, the actuarial estimates confirm that the various short-term remedies involving grandfathering do nothing substantial to forestall trust fund depletions. Here is a typical example involving raising the normal retirement age: “After the normal retirement age (NRA) reaches 67 for those attaining age 62 in 2022, increase the NRA by 2 months per year until it reaches 69 for those attaining age 62 in 2034. Thereafter, increase the NRA by 1 month every 2 years.” The impact? The combined trust find depletion date is still 2033, and the benefit reduction improves only slightly to 21%.
I think it can be fairly concluded that the pending threat to all beneficiaries cannot be solved by reducing benefits for only future beneficiaries.
What about the Democrats? I am disappointed that the tone among supporters of Social Security is typically one of optimistic assurance -- the 2033 year depletion estimate is really OK because it means there is time to solve the problem, and the 23% reduction is really OK because it is not like Social Security cuts off totally. For example, this AARP article. Why portray this optimism when you know that the Republicans do not want to solve this problem? Why let them evade the issue with their own base?
Since Congress is foreseeably likely to do nothing, the Democratic/Progressive position ought to be that we have an obligation to warn everyone, loud and clear and often. This is realistic, not alarmist. People on a limited income need as much time as possible to prepare for a deep and permanent income reduction.
Get the public's attention and then explain to the public how the problem can be solved. It is not an alternative to just reduce benefits for future beneficiaries, and, as discussed, this will not address the “20 year” problem in any event. It cannot be an alternative to increase the already regressive payroll tax rate, either now or in the future. The Democratic/Progressive position has to be that it is not a solution to further burden our young people.
Bottom line, it is time to Overton Window the argument that the only viable solution is to eliminate the cap on taxable income or otherwise increase the taxes on higher earners. The OCA lists and analyzes 113 “solvency proposals”. Only seven of these push the estimated depletion year to 2064 or later (50 years from now). Put aside the two that would increase payroll tax rates, and the other five are all variants on eliminating the cap on taxable income.
This easily positions the Fox News demographic plus Millennials plus everyone else against the “1%”. The Democratic/Progressive bargain with the Fox News demographic is simply this: We will prevent any reduction in your benefits as long as you let us do it.
This has been my first posting here. I have much more to say on this topic, but I will space out the postings and keep them at reasonable lengths.