Green Room

Is it too late to save Social Security?

posted at 9:38 pm on September 4, 2012 by

For a long time, it has been argued that Social Security was the easier of the two entitlement “bombs” to defuse. Indeed, Senate Majority Leader Harry Reid (D-NV) infamously said last year that nothing needed to be done to Social Security until the 2030s. Social Security Public Trustee Charles Blahous, author of Social Security: The Unfinished Work, argues that it may already be too late to save Social Security “as we know it”:

Social Security’s future, at least in the form it has existed dating back to FDR, is now greatly imperiled. The last few years of legislative neglect — due to a failure of national policy leadership coming just as the baby boomers have begun to retire — have drastically harmed the program’s future financial prospects. Individuals now planning their financial futures, whether as taxpayers or as beneficiaries, should be pricing in a substantial risk that the federal government will not be able to maintain Social Security as a self-financing, stand-alone program over the long term. If Social Security financing corrections are not enacted in 2013, or at the very latest by 2015, it becomes fairly likely that they will not be enacted at all.

Blahous gave three reasons for a lack of hope for resolving the Social Security crisis – the Baby Boomers starting to retire, the inability of either side to compromise in the face of a lack of one-party domination, and the lack of seriousness of many in power to address the issue. Allow me to add a fourth – the inability to even address the Disability Insurance (DI) portion. Despite outgo in the DI program outstripping taxes since the end of 2005, outgo outstripping both taxes and interest on the trust fund since early 2009, and predictions in each of the last several Trustees’ Reports that the trust fund would zero out sometime this decade (with the 2012 Trustees’ Report putting that year as 2016), nothing has been done to address this. Even the assumed “solution” of chaining it to the larger Old-Age and Survivors Insurance (OASI) trust fund, which would extend the life of DI roughly 17 years at the cost of shortening the life of OASI roughly 2 years, has not made it to the floor of either House of Congress.

The overall problem is much worse, if not quite as immediate, as the 1983 OASI crisis, or the 1994 DI crisis. In 1983, OASI merely had to weather a short-term storm before running nearly 30 years of surpluses, though it would have collapsed again in the 2020s and, if tethered to DI, collapsed the entire system by 2040. In 1994, the fix for the drain of the DI fund was even simpler because it was merely a short-term fix designed to last 22 years – reallocate a larger portion of the FICA/SECA tax toward DI, possible because the larger OASI fund was projected to run a couple decades of surpluses with or without the reallocation. Now, both programs are in the red, and indeed, about to be deeper in the hole than projected in the mid-1980s as this graph on the projected balances from the 1982 and 2012 Trustees’ Reports from Blahous illustrates:

In 1983, the long-term solutions, which barely made it through Congress, were to delay the COLA adjustment by 6 months, bring federal employees into the system, subject the self-employed to the same total tax rate as “traditional” employees and employers, and subject half (the employer-funded portion) the benefits of the “wealthy” to the income tax (which, thanks to a lack of any adjustment for inflation, is hitting more seniors every year). Blahous notes that the divide now is at least twice as wide as it was then.

Worse, two of the main “solutions” often offered up by those on either side of the “limit benefits vs. tax more” divide, limit benefit growth to price inflation instead of wage inflation for at least the “high-income” earners, and raise the cap on the FICA/SECA tax to an undetermined maximum (up to and including infinity) without allowing any increased benefits, appear to be unable to solve the long-term problem on their own. Indeed, while either of the two most-extreme versions of the “solutions”, indexing all benefits to price inflation and eliminating the cap on the FICA/SECA tax entirely, may have passed the “75-year actuary test” back in 2005, neither alone will work in 2012.

What does continuing to do nothing until it is too late mean for Social Security? Blahous explains:

Upon merging into the general fund, Social Security benefits would be far less secure going forward. Benefit payments would have to compete with other annual spending priorities, and would be limited to those deemed affordable given pressures elsewhere in the budget. They would thus be much more susceptible to sudden reductions, means-tests, and other episodic changes to which general fund financed programs have long been subjected.

If this all happens, and renders tomorrow’s Social Security benefits less secure than today’s, it would be a tragic irony: the outcome would have been brought about largely by supporters of Social Security having countenanced the tactics of delay to the point that the program’s unique political protections could no longer be preserved. Those who care about the Social Security program need to clearly understand the consequence of this ongoing neglect; that time for a realistic financing solution has nearly run out.

Just as a reminder, when the trust funds run out of money, whether it be the DI fund in 2016 should nothing be done, the OASI fund in 2035 should nothing be done, or the combined OASDI funds in 2033 should that combining be the only thing done, the benefits paid out by said fund(s) will be cut by over 20%.

There is also the very real cost of getting DI to the middle of 2016, and OASI barely into 2035 (or if one prefers, the combined programs into 2033); the monetization of the trust funds. The Trustees put the difference between non-trust-fund revenues and expenditures of the combined OASDI programs at $4.993 trillion in current dollars (inflation-adjusted $3.506 trillion in 2012 dollars) through 2032, the last full year of “normal” operations. In 2032, the inflation-adjusted shortfall is projected to be roughly $349 billion in 2012 dollars (non-adjusted $586 trillion), or nearly a third of all the discetionary spending by the federal government this fiscal year, with an ever-increasing shortfall in succeeding years. Unfortunately, that money doesn’t exist outside of a series of IOUs, which means it will have to be borrowed, taxes will have to be increased, other spending will have to be cut, or some combination of the three will need to be done.

Before that, specifically in 2026, total spending on Social Security on an inflation-adjusted basis will exceed what will be spent in federal discretionary outlays this fiscal year. If all that is done is Social Security remains a drag on the larger federal budget by paying out all of the promised benefits, by the time 2070 rolls around and most of the Gen-Xers (including me) die off, in inflation-adjusted terms, spending on Social Security will be more than what either the White House Office of Management and Budget or the Congressional Budget Office expects the federal government to take in next fiscal year, when Taxmageddon hits.

Social Security, in its current form, is doomed. Waiting until the last few months, as was done in both 1983 and 1994, is not exactly an option. The window for an “easy” solution, if it hasn’t already closed, is rapidly closing. The person who is in the White House after January 19, 2013, and those in Congress next year, will have to make hard choices quickly.

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Yes it’s too late to save it, especially if Obummer is reelected.

My husband and I have tried to save what we can (although that’s been impossible lately since we are both unemployed) because we have assumed that Social Security either won’t be there for us or it won’t be there for very long after we start drawing benefits.

I think it’s criminal that Congresses have stolen the money that was supposed to be saved to pay Social Security but unfortunately we must deal with reality, not with how things should have happened.

sherrimae on September 4, 2012 at 11:08 PM

the inability of either side to compromise in the face of a lack of one-party domination,

And the first two years of President Choom don’t count because..? He had a super-majority. That sounds like one-party domination to me.

RoadRunner on September 4, 2012 at 11:18 PM



tom daschle concerned on September 4, 2012 at 11:19 PM

Theft of this magnitude deserves the ULTIMATE punishment….
A home in Chicago.

dirtengineer on September 4, 2012 at 11:27 PM

sherrimae on September 4, 2012 at 11:08 PM

I hear you on the employment front. Hopefully you two will get good jobs to continue planning for your own retirement soon.

As for the “trust funds”, Blahous explained in some detail how the large “trust funds” weren’t exactly fully-planned out in his book as they were an artifact of a rushed attempt to make SocSecurity “work” over a specified 75-year period. The problem is that the interest earned was needed to make it to 2058 (at least that was the plan), and not even the government is willing to pay itself interest on money that isn’t “working”.

I agree that those early surpluses should have gone into a segergated fund, untouchable by anything other than benefit payments, even if it earned no interest and shortened the life of the program by several years.

Steve Eggleston on September 4, 2012 at 11:31 PM

And the first two years of President Choom don’t count because..? He had a super-majority. That sounds like one-party domination to me.

RoadRunner on September 4, 2012 at 11:18 PM

Choom had “other” priorities with that super-majority, such as passing PlaceboCare and solidifying trillion-dollar deficits as far as the eye can see in the last full budget adopted.

Steve Eggleston on September 4, 2012 at 11:35 PM

Strictly speaking, its not too late, but you’d have to make a series of unpopular decisions to save it.

First, you’d need to push back the retirement age, asap. The more years people have to pay into the system before retiring, the more solvent it becomes

You may need to do more than that though, depending on whether or not the political will is there to push the retirement age back dramatically. Pushing it back a couple years helps, but anything less than five years is only going to delay the problem, not solve it.

Other, partial solutions, would be to change the way benefits are calculated, to limit who can receive social security, and so on and so forth.

Realistically though, any plan to reform social security has to have a plan to either limit it over time, or to replace it somehow. Any program that moves around so much money is bound to get into problems in time, no matter how many fixes you apply. Therefore, to make it something truly sustainable, you need to make it something either a small portion of the population uses, or find a way to make it fit within the private system to some degree.

WolvenOne on September 4, 2012 at 11:42 PM



tom daschle concerned on September 4, 2012 at 11:19 PM

I happen to believe that an orderly winddown for OASI is still (barely) fiscally possible, but the window for even that going to slam shut by 2016, long before the political will to do that will have gained momentum.

It’s too late for DI.

Steve Eggleston on September 4, 2012 at 11:46 PM

That is the problem when you offer people free things. The price goes well beyond the initial scope. Hell, it even is exacted in many forms. Perfectly capable people going on SSDI in record numbers, faking illness that has them abusing the medicaid along with it. Of course, that is the disability aspect of it, then there is the arbitrary best if used by date that throws millions of perfectly capable people off the working rolls and into the sucking off other people’s money rolls. For the life of me, I just do not understand why on earth we even want to save this crap. Like the porn thread on the other page, it poisons the soul and destroys the person. Social security is porn for people who want to live free from the burdens of providing for themselves. Yet here we constantly have conservatives (are you really?), promoting saving it so it will be there for every generation to be poisoned by the socialism it represents. Of course, every last bit of it is paid for with money stolen from the following generations. In higher interest costs, lower productivity, increased inflation which always hits the poor the worst and potential for a full on economic collapse.

Right now the the only way the government can keep itself running is to balloon beyond belief the money supply, so that that money is in return given back to the government in the form of a loan. Its not going to end well.

astonerii on September 5, 2012 at 12:05 AM

WolvenOne on September 4, 2012 at 11:42 PM

Hence, the conundrums (yes, plural). If half-remembered back-of-the-head calculations serve, the retirement age would have to approach the mid-70s average lifespan, and the “early retirement” option would have to be eliminated entirely, for a raised retirement age to work on its own.

One could push back the retirement age significantly, but the closer to the average life span one gets, the closer to a “sucker bet” Social Security, at least in any form that doesn’t pay out more than a meager survivor benefit, gets. I would like to think that the populace is a bit wiser than to buy a “We’ll take 10% of what you earn for a retirement fund, and half of you won’t get a penny because you’ll die before you’re eligible” pitch (which would have been FDR’s pitch if he were honest) if it were made today.

Blahous has repeatedly addressed why Social Security has survived as long as it has – it is a promise to every American that for every dollar one puts into it, assuming one lives to start collecting, at least a portion of that dollar will be used to calculate the benefit. Take that away, and the proverbial Pandora’s box opens up.

Steve Eggleston on September 5, 2012 at 12:07 AM

astonerii on September 5, 2012 at 12:05 AM /blockquote>
Don’t even get me started on DI (aka the GOP SocSec mistakes – and yes, it’s plural).

Steve Eggleston on September 5, 2012 at 12:11 AM

Steve Eggleston on September 5, 2012 at 12:11 AM

R.I.P Conservative Republican Party 2012, the party can no longer conserve the heritage our fore fathers died to give us, instead…
Long live Preservative Republican Party, since 2012, preserving the socialist state to poison the nation’s soul for another 80 long years, or until we can say R.I.P The United States of America.

astonerii on September 5, 2012 at 12:17 AM

Steve, many thanks for the coverage, and for putting together such an informative and substantive piece.
the inability of either side to compromise in the face of a lack of one-party domination,

And the first two years of President Choom don’t count because..? He had a super-majority. That sounds like one-party domination to me.

RoadRunner on September 4, 2012 at 11:18 PM

Good observation, which my piece also addresses. Here’s how I put it in the piece:

A solution requires substantial compromise by one or both sides. If one person (or a unified political party) commanded total political power and was willing to use it, they could impose their preferred solution on those who disagree. The last such opportunity was probably 2009-10 when Democrats controlled both chambers of Congress and the White House. Had they so chosen, they could have shored up Social Security on their own terms. No such attempt was made. Today no one expects that either party will single-handedly control the White House, the House, and 60 votes in the Senate within the next few years. Thus if Social Security finances are to be repaired, someone must dramatically compromise: either progressives must accept substantial benefit growth reductions, conservatives substantial tax increases, or both. Unfortunately as I will show below, we are already long past the point where there is precedent for a compromise of this magnitude.

Chuckles3 on September 5, 2012 at 8:10 AM

preserving the socialist state to poison the nation’s soul for another 80 long years, or until we can say R.I.P The United States of America.

Oh, nooooooooooo ….we’re all gonna die!!!

Or lose our souls, or something.

All we have to do is recognize that it is a welfare program, which is the truth. Problem solved. People who don’t need it will be dropped off the roles.

Will the dropped people have been badly cheated? Sure. The program always was a “progressive” scam to get responsible working people to help unlucky people be able to retire.

The real problem is Medicare, but Obama has already gone a long way toward fixing that by accelerating it toward bankruptcy and bringing on death panels.

Old and broke? Here’s your pill.

These problems will be fixed. We just won’t like the solutions.

fadetogray on September 5, 2012 at 8:38 AM

fadetogray on September 5, 2012 at 8:38 AM

Which reminds me of something Iowahawk tweeted out this morning – “I wont force you to have kids, you won’t force my kids to pay for your retirement. Deal?”

While acknowlegement that Social Security is a welfare program would make that possible, it’s more likely to end up being like foodstamps.

Steve Eggleston on September 5, 2012 at 8:48 AM

The flow of funds in Social Security is exactly like the flow of funds in an X scheme, where the investors in the X scheme keep making more contributions, expecting that they will get a promised payout beyond what they’ve invested. Normally, X schemes fail quickly, but with the investors keeping up the inflow, they can last for a long time — a century from now, people will point at this example of an entire country becoming involved in an X scheme (otherwise known as a Ponzi scheme, but it’s run by the government, so it’s legal; still doomed, there are not an infinite supply of investors.)

htom on September 5, 2012 at 11:57 AM

(otherwise known as a Ponzi scheme, but it’s run by the government, so it’s legal; still doomed, there are not an infinite supply of investors.)

htom on September 5, 2012 at 11:57 AM

If you get rid of the idea of the end of the world, there are in fact an infinite number of potential investors. None of which have any say in the matter. They are called future generations. Remember that South Park episode where people from the future invaded the present and took everyones job? Well, We are basically spending the wealth of the future to enjoy luxury today. This really causes a lateral move today from producers to moochers. The problem is that this poisons the soul of the people. Producers are harmed by being stolen from and the moochers are destroyed due to a lack of productivity, which has been proven to seriously effect the mental as well as physical well being of people. It is a perpetual decay mechanism that eventually will leave future generations worse off than the previous one.

astonerii on September 5, 2012 at 1:13 PM

Yes, SS needs to be ended, NOW! We can’t afford it anymore.

nazo311 on September 5, 2012 at 2:35 PM

nazo311 on September 5, 2012 at 2:35 PM

Probably past the point we can. fully 22% of the voting age public receive social security benefits. Who knows how many of those 47 million americans on food stamps add to this percentage. But people who are dependent on government money to live vote religiously. Since a little over half the country votes at all, that means pretty much a full half of the electorate has already figured out they can vote money from other people’s pockets and into their own…

It was a good country for a while. I actually enjoyed the 80s quite well.

astonerii on September 5, 2012 at 3:00 PM