By Robert Tracinski
Friday, April 22, 2015
The little-recognized implication of this year’s election
is that we are never going to fix Social Security.
The unsustainability of the crown jewel of the
middle-class welfare state is well known. As the Baby Boomers get old, there
are fewer younger workers paying taxes to support them. The program’s reserves
are being spent down and will be thoroughly exhausted some time around 2035, at
which point Social Security will only be able to pay out 79 cents of every
dollar it has promised in benefits.
We’ve been talking about basic reforms and long-term
solutions for decades, and we’ve gone back and forth, and I’m starting to
resign myself to the fact that we’re never going to do it. George W. Bush made
the last big effort in 2005. He ended up getting sold out by congressional
Republicans, burning up a lot of political capital from his re-election, and
getting nothing in return. All the more credit to him for trying, but
realistically, he’s likely to be the last. Most of this year’s presidential
candidates either want to expand the program (Bernie Sanders) or are
indifferent or hostile to reform (Hillary Clinton and Donald Trump). Those
three represent the overwhelming majority of this year’s primary voters.
So we’re at the point where we have to start
contemplating the possibility: what if we don’t fix Social Security? What if
2035 closes in on us, and we’ve done nothing to reform it? What if we just let
it break?
Well, if we think this through, we find out that letting
Social Security break is a kind of
reform, by default.
Do As I Vote, Not
As I Say
That’s an intriguing suggestion I recently came across:
that allowing the system to run out of money and simply cutting benefits by 21
percent across the board, as would be required to make benefits match the
program’s tax revenues, would constitute a de
facto reform. My only real quibble is that the article refers to this as
the “most hated Social Security fix,” based on polls in which people say they don’t want it to happen. But
there is frequently a big difference between what people say they want and what
they actually vote for. It’s like how they all hate Congress but keep
re-electing their own congressman, over and over again.
Judging from the way people actually vote, doing nothing
about Social Security is in fact the overwhelmingly popular option, ratified in
dozens of elections over the past three decades. It is the verdict of the vox populi.
Yet just running out of money would actually achieve a
lot of the reforms we’ve been talking about, without anyone ever having to vote
for them—which is precisely what everyone wants, right?
For example, it is widely agreed that we will have to
push back the official retirement age at which people become eligible for
Social Security benefits. When the program was first created, average life
expectancy was not much longer than 65 years. It was only supposed to provide
support for the last few years of the average person’s life. Today, life
expectancy is more than ten years longer, and it will probably be longer still
by 2035. So it makes sense that Social Security shouldn’t be paying for the
last decades of everybody’s lives. We should move the retirement age back a few
years.
By doing nothing, we create a strong natural incentive to
do just that. Current Social Security rules allow you to increase your Social
Security payment by putting off retirement for a few more years. The longer you
wait, the greater the increase, in accordance with this chart. So to make up
for a 21 percent cut, you will need to delay your retirement by a little more
than three years. Which is exactly the kind of reform we would have pushed for.
Here’s another example. To make up for Social Security’s
shortfall, we should be pushing people to become less dependent on it by
funding more of their retirement with tax-free private savings. Well, it looks
like they’re going to have to do that, like it or not. A big across-the-board
cut in Social Security benefits will induce millions of panicked millennials to
frantically max out their 401(k)s and IRAs just as they’re entering their prime
earning years. Which is exactly what we need them to do.
If You Don’t Know,
It’s Your Fault
But what about people who don’t have time to save and
plan—people like me who will reach retirement age just as the Social Security
money runs out? Well, we’ve had plenty of warning. All of the people
immediately affected by this future cut in Social Security will have heard for
at least four decades that the program is in crisis, that it is running out of
money, that it is going to go bankrupt. So when the thing we were told for our
entire lives was going to happen actually happens, there’s really no reason to
have any sympathy for us.
But there are certainly some sympathetic cases, the
people at the bottom getting the lowest levels of Social Security benefits, who
will be least able to compensate for a 21 percent cut. But if your concern is
about the elderly poor, a lot of us have been asking: why not put your money
where your mouth is? Why not donate some of your own income and time to a
charity that helps those for whom you say you have so much compassion? Letting
Social Security break and then having private charities take up the slack—which
they generally do much better and more efficiently than government—is one of
the big reforms free-marketers have advocated all along.
And if you insist on having government do something about
the poor, does it makes any sense to pour more money into entitlements for the
middle class? My own proposal for reforming Social Security is to make it into
a straight welfare program for the poor. Letting the program break would go a
long way toward accomplishing that. It would cut benefits across the board, but
those at the bottom, who are hit worst, would be able to seek help from other
means-tested welfare programs, like food stamps or housing subsidies, that
could be ramped up to accommodate the influx, probably at much less expense
than trying to keep the entire Social Security system operating unchanged.
Look on the Bright
Side of Ineptitude
The only thing that would not be accomplished by doing
nothing about Social Security is to raise taxes, which is excellent. Raising
taxes to pay for Social Security has already been tried once, and it didn’t
solve the problem. The new Social Security payroll taxes imposed in 1983, in
the program’s last attempt to tax its way to solvency, are already enormous.
They are far greater than the program’s tax burden was ever supposed to be, and
I would argue that those payroll taxes have significantly decreased the ability
of the average family to save their own money for retirement, making them more
dependent on Social Security and therefore making the problem worse. Raising
those taxes further is likely to be counteracted by their drag on economic
growth, income, and employment. Doing nothing looks like a much better option.
So doing nothing about Social Security ends up doing an
awful lot. And isn’t that the standard solution we’re starting to adopt for
dealing with failing government programs? Voters clearly aren’t in a mood to
think things through, question the basic priorities of our government, and
implement orderly solutions. They’ve decided, at least for a while, that it’s
easier to vote their emotions and lash out at the DC establishment, or
billionaires, or immigrants, or whoever.
So when we have a failing program—and ObamaCare is on
track to fail well before Social Security—we aren’t likely to button it up in
an orderly way, learn our lessons, and implement a better solution. We will
just let it break and cobble together the pieces in as much order as we can
manage.
If you don’t like this approach, then you’re free to back
some better reform proposal. There’s not much time left, but we’ve been telling
you that for years. And the fact is, if you’re supporting the front-runner of
either party, then you don’t really want us to do anything about Social
Security for most of the years we have left. Sure, when the system’s collapse
is imminent, you will then frantically demand that somebody do something, but
it will be too late.
As they say, if you fail to plan, you plan to fail. Right
now, America is planning for its middle-class welfare state to fail—which turns
out to be a kind of haphazard plan of its own.
No comments:
Post a Comment