The Social Security Trust Fund is in much worse condition than most Americans realize. But both parties refuse to stand up to it. why? This is a phrase intended to evoke the political equivalent of power supplies, as addressing social security is considered “touching the third rail.”
This is where things stand. Approximately 73 million Americans rely on Social Security for retirement, disability, or survivor benefits. But the program is bleeding money. They pay around $60 billion in profits each year than they collect from payroll taxes.
We cannot continue to borrow printing through this crisis. Kicking the can only lead to an inflation disaster.
How about the trust fund? Have you saved money due to the shortage?
Technically, yes. The Trust Fund holds $2.8 trillion in assets, but not cash. The funds have been loaned to the federal government for years to fund the $36 trillion citizen debt swell. Instead, the government issued $2.8 trillion in Treasury debt to the Trust Fund. Simple English: Authentic.
Each month, the Trust Fund redeems some of those Iou to cover that shortfall. But there’s a catch. The federal government also has no cash – it has a deficit of $2 trillion a year. So when you pay the trust fund, it’s just borrowing more. In effect, Washington prints money to maintain social security.
Even if the trust fund had $2.8 trillion in actual cash, it would be dry by 2033. That’s because more people will leave and extract profits than workers paying for the system. If Congress does nothing, profits will fall by 23% in 2033. Why? By then, the fund will only collect about 77 cents of tax revenue for each payment. The retirement of millions of baby boomers each year only accelerates this imbalance.
The longer the council delays, the worse the corrections will be. And the greater the risk that Washington is being buried in debt, the less they can repay the trust fund. Soon, interest payments on national debt will exceed the $1.6 trillion paid annually to Social Security’s 73 million beneficiaries.
It’s time to stop pretending this issue is fixed. Yes, touching on the “third rail” involves political risk. But doing nothing guarantees economic and political disasters.
So, what can we do?
First, remove the Social Security Payroll Tax cap. Currently, workers have stopped paying 6.2% tax after earning $168,600 a year. Lifting that cap raises around $200 billion a year. This is enough to solve 70% of long-term funding issues. Yes, high-income people will be angry. But the move will also stabilize the interests of tens of millions of Americans.
Next, adjust the system parameters. It punished young workers, but was able to raise the retirement age. You can increase your payroll tax rate. It can reduce benefits for wealthy retirees. You can also loosen your dog to combat waste and fraud that will drain billions of dollars out of the system. These strategies can be combined to close the remaining 30% of the funding gap.
Third, we need to expand the pool of contributors. The population growth in the United States is stagnating. The best way to advance is to increase legal immigration among healthy, working-age adults. At the same time, we should encourage more Americans to revive the workforce. What is the surest way to do that? Boost the economy and Job creation.
What we can’t do is continue printing and get over this crisis and borrow it. Kicking the can only lead to an inflation disaster.
The most painful option is to cut profits. However, a significant reduction in retirement income for older people who cannot easily return to work is financially, morally and politically devastating.
Whichever you pursue, the federal government must stop borrowing from trust funds. It makes no sense to lend money to a government that owns historic debt. Trust funds should be allowed to invest in safer, productive assets that provide reliable revenue.
The delay time is over. Politicians must do Grab the third rail – Not because they want to do it, but because the country needs them. If they honestly explain their interests and act decisively, voters may simply reward courage rather than coronavirus.
