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April 04, 2023 at 10:03 AM
The Social Security Administration says its trust funds will be depleted in 2033, one year sooner than was projected last year. This is because there are too few workers paying Social Security taxes and too many retirees receiving benefits.
Congress has 10 years to solve the problem; if it fails, all retirees will suffer a 23% cut in benefits, starting in 2034.
Do you think Congress will reduce benefits? Hardly. All the bills introduced so far increase, rather than decrease, benefits.
H.R. 82 would eliminate the Windfall Elimination Provision and the Government Pension Offset; H.R. 521 would guarantee both current benefits plus inflation-based increases; H.R. 1046 would actually increase benefits by $2,400 per year; and S. 424 would require a two-thirds majority in order to enact any benefits cuts.
It also looks like Congress is watching closely what’s going on in France, where millions of protesters refuse to accept President Macron’s increase in the retirement age (from 62 to 64).
The sad truth is that everyone seems to be in denial.
Today’s Reality
When the Social Security system began in 1935, there were 135 workers for each retiree. That meant lots of people were paying taxes and putting money into the system while very few people were receiving money from it.
But demographics have shifted in ways FDR could not have predicted.
Today, there are only three workers for each retiree. This is partly because women are having fewer babies than they did in the 1930s, 1940s, 1950s and 1960s. It’s also partly because innovations in public health and medical science have extended life expectancies, from the 50s in 1930 to the 80s today.
FDR assumed that you’d retire at 62 and die by 65; the Social Security system worked well when people paid into the system for 40 years and withdrew from it for three years. The system was never meant to pay benefits to anyone for 20, 30 or 40 years — but that is now routinely occurring.
The result? SSA says it’s collecting only 77% of the money it needs to pay benefits. So where’s the other 23% of benefits coming from? The Social Security Trust Fund. And that bucket will be empty by 2033.
The law says SSA can only pay out whatever money it has — for now, that means tax revenue plus trust fund assets. But when the trust fund is depleted, SSA will be limited to Social Security tax revenue.
That’s why all retirees will suffer a 23% cut in 2034.
It would seem that there are only two solutions available to Congress: cut benefits or increase taxes. But I have an idea that might solve the problem in a different way. Instead of reducing/delaying benefits or raising taxes, why don’t we just appeal to everybody’s sense of patriotism instead?
