Yesterday’s announcement that Barack Obama would avoid proposing any reform measures on Social Security hardly comes as a surprise.  Few Presidents have ever found the courage to tackle the so-called “third rail of American politics”; the last to do so, George W Bush, wound up seeing his proposals demagogued in a Congress controlled by his own party. Most Presidents and politicians prefer to kick the can down the road, even when the road dead-ends a few feet ahead into the gaping maw of a bottomless pit.

The only surprise in this story comes from the fact that Obama commissioned a panel whose scope included the oncoming entitlement collapses, and which did recommend to Obama some difficult and expansive steps to at least reposition Social Security into better fiscal health, if not into long-term solvency.  Congress resisted the budget recommendations of the presidential commission, but one might have expected the President who asked for those plans to at least make the case for them.  If not, why did Obama bother to create the commission at all?

The President has essentially retreated from the battle, perhaps disheartened by the rhetoric coming from his own side that Social Security doesn’t have any immediate problems.  Harry Reid has been singing that tune for the last six years, or more appropriately, whistling in the wind.  Charles Blahous, author of Social Security: The Unfinished Work (Kindle link here), gave me permission to quote extensively from its first chapter to explain the dangers of a delay in addressing the eventual collapse of the program, and how it will limit the eventual solution to either massive defaults or massive tax hikes:

Another notable aspect of the Social Security challenge is the cost of continued delay in repairing program finances. The longer that we put off dealing with Social Security, the less fair the solution will be.

We could, hypothetically, make the system permanently sustainable today without raising Social Security taxes in any way, without changing benefits for those now in retirement, and while still allowing future retirees to receive benefits that are higher than those paid today even after adjusting for inflation. That is, benefits could grow smoothly on a path that rises consistently in real terms, without raising taxes.

Within just a few years, however, that will no longer be true. Within about a decade, a Social Security solution would require a choice among raising taxes, reducing benefits for those already in retirement, and/or forcing future retirees to receive lower benefits than previous retirees received. Either we’d need to tell young Americans that their taxes are going up or we’d need to start telling retirees that their standards of living are going down.

If we run this thought experiment all the way out to 2037, we see that we would then face a choice of suddenly reducing benefits by 24 percent, increasing taxes by 31 percent, or some equally disagreeable point between those poles. Moreover, even this array of choices assumes that we’d be willing to suddenly cut a retiree’s benefit from $2,000 in one month to $1,520 the next— hardly likely. If instead we wanted to shield then- current retirees from sudden cuts, we could only get a comparable amount of savings by cutting the entirety of benefits for new retirees.

Whether we define the “problem” as occurring in 2016 or 2037 thus matters little to the question of whether we should act soon. Either way, a solution enacted today will be far fairer across generations, and involve far less concentrated pain, than one enacted ten or even five years from now. As we delay for reasons of political expediency, the ironic consequence is that the political difficulties of reforming Social Security only mount.

Why is delay so costly? There are a number of reasons, one of which I just touched upon: the bipartisan political consensus that we shouldn’t cut benefits for those now in retirement or about to retire. Thus, every year that passes, another class of retirees joins the rolls with benefit obligations locked in as politically inviolate.

Moreover, due to the wage- indexing of the benefit formula, each year’s delay means that we’re also locking in a greater base benefit level.  This makes it less and less possible to avoid future declines in real benefit levels without raising tax burdens. In practical effect, delay inevitably exacerbates the tax increases that we will oblige young Americans to accept.

Perhaps the easiest way to understand the consequences of delay is to note that each year that we fail to act, we take another cohort of Americans— specifically, a historically large class of baby boomer retirees— out of the solution process. This means that the burden of filling the Social Security shortfall must be borne by a shrinking fraction of the population. Further concentrating the sacrifice on younger Americans is particularly unfair given that these generations already stand to lose money, net, through Social Security as it is.

Why is that?  Because they’re funding the preceding generations, and the succeeding generations won’t be sufficient to fund their retirements:

The table also shows, however, that those already in Social Security will, in the future, get back $18.7 trillion (in present-value dollars) more than they will contribute henceforth. In short, their past excess contributions, even if they had been saved, are nowhere near the amount needed to pay for their future benefits.

This is where young and future generations come in. Social Security is a pay- as- you- go system: each generation’s benefits are paid primarily by taxing those that follow (this is true even if we adopt the controversial viewpoint that the $2.4 trillion Trust Fund is effective pre- funding). Were we to exclude current program participants from the solution, those just entering Social Security now will effectively be asked to put an additional $16.3 trillion into the system beyond what they will ever receive.

The time to address these shortfalls and backbreaking burdens on future generations is now, before more retirees hit the system and their benefits cannot be adjusted, at least not politically speaking.  Obama’s retreat signals that the White House has no intention of addressing this crisis in the near term despite Obama’s grandstanding with his debt commission.  It speaks to a lack of real leadership, and also gives a big indication of just how seriously we can expect Obama to take budgetary reform in general over the next two years.

Obama will certainly lay claim tonight to fiscal responsibility over the next two years in his speech.  If he’s too afraid to even broach the recommendations of his own panel on Social Security, however, don’t hold your breath.