Social Security’s ‘Easy Fix’
As of 2013, Social Security has an unfunded liability of $9.6 trillion. This represents the difference between what the program takes in as taxes and what it is scheduled to pay out in benefits over the next 75 years. This huge liability is why every year the Social Security trustees write that timely action is necessary so that the problem can be fixed as quickly and painlessly as possible. Ironically, it’s this painlessness that is used by many as an excuse to not do anything.
In public policy discussions regarding changes to Social Security, you’ll often hear politicians and pundits say Social Security’s problems are small and easily fixed. They’ll claim its troubles are overblown by people out to harm the program. But what are these easy fixes? To come up with the extra $9.6 trillion, the Social Security tax would need to increase from 12.4 percent to 15.06 percent; benefits would need to be reduced 16.5 percent; or some combination of tax increase and benefit reduction. Those fixes are relatively small.
However, the problem with these “easy” fixes is that Social Security’s rate of return is already minuscule. In fact, beginning in 2011, for retirees of two-income households earning the median wage, the return was negative. That means those retirees can expect to get less in benefits than what was taken from them in taxes throughout their working lives. Suddenly, raising taxes and reducing benefits doesn’t seem like such an easy fix any more. It seems more like making an already bad investment even worse.
Proponents argue that what we may be giving up in rate of return, we gain in confidence that we will have a stable form of income throughout our non-working lives. But as it turns out, nobody really believes that anymore. Gallup found that six in 10 workers don’t think they’ll get anything from Social Security, let alone a stable income. Those workers are likely overly pessimistic, but those numbers reflect the very real fear that Social Security is teetering under its own weight. A negative rate of return was never the expectation of even the most ardent supporter of Social Security. No one would voluntarily enroll in such a program.
The facts that Social Security is already failing by giving back less than what it takes, and the only solution to its insolvency is to take more and give back even less, is proof that drastic measures are imperative. This is not a program in need of minor tweaks. Social Security is ready for wholesale changes.
Webpage: Social Security, Part 1: The Basics
Report: Social Security Trustees Report
Report: Social Security’s Rate of Return
Article: Social Security Not Deal It Once Was