It is a truth universally acknowledged that Americans are underprepared for retirement. And given this sad fact, there’s a growing movement on the left saying we need a government solution, stat: specifically, an expansion of Social Security benefits.
Perhaps you are confused. Weren’t we just talking about entitlement reform so that we could spend less on the program? Why, yes, we were. But since no one, left or right, really wants to take on our vast army of retirees, that chatter has died down. Now that it has, progressives who are ideologically opposed to shrinking the welfare state and are, of course, worried about retirees have decided that the best defense is a good offense, as Jamelle Bouie chronicles in Slate. Instead of reluctantly agreeing to a compromise where Republicans let some taxes rise and Democrats agree to entitlement cuts, they’re demanding bigger tax hikes to fund bigger entitlements.
At the core of their argument is a good point: Americans really do need more money for retirement. Missing, however, is a realistic discussion of where that money might come from.
And it’s a lot of money. The OASI Trust Fund (the portion of Social Security that covers old-age benefits) already pays out more in benefits than it collects in tax income. In 2014, the Social Security Trustees expect the system to collect$643.9 billion in payroll taxes and spend $716.4 billion on benefits and administrative overhead. If you add in the taxes collected on Social Security benefits, you get $671.9 billion in total tax revenue, which leaves a $44.5 billion deficit between outflow and inflow. Under its middle-of-the-road “intermediate” assumptions, the trustees’ report predicts that by 2023, the gap between taxes collected and benefits paid will be almost $170 billion. The only reason that the system isn’t in the red already is the net interest the government is paying itself on the bonds in the trust fund.
Now, I don’t want to get mired in the tired old arguments about whether the trust fund is “real” — whether it’s a stupid accounting abstraction or a profound moral promise on the part of the U.S. government — because this obscures the actual point we need to be concerned with: If we want to pay Social Security beneficiaries more money than we are collecting in payroll taxes, the money has to come from somewhere, and ultimately, that “somewhere” is the United States taxpayer. It is supremely irrelevant whether that money flows through the “trust fund” or Uncle Sam holds an annual ceremony in which the trustees are handed one of those giant checks they present to lottery winners; we still need to find the money to make good on that check.
Before we start adding new benefits, we should think about where we’re going to get the money to pay the ones we still haven’t funded. And then carefully count the cost of making them more generous still.
So where is the money going to come from, for our once and future Social Security program? The unhelpfully vague answer is generally “the rich.” Some specific numbers would be useful here, and thankfully, some folks from the Third Way have actually provided some.