Ten years ago, Democratic and Republican lawmakers devised elaborate plans to fix Social Security’s deteriorating finances. Democratic lawmakers have continued to work through this vision, but the GOP has not introduced a single comprehensive solvency bill since 2016.
How long will they wait?
The Social Security funds are running out. In recent years, it has collected less money from employees and employers than it distributes to 65 million recipients. By spending down its once-$3 trillion trust fund, it makes up for the difference.
The trust fund will run out and benefits will be reverted to payroll taxes. The benefit cut for everyone will be more than one-fifth if Congress doesn’t fix Social Security before then. There is no complexity in fixing Social Security.
Lawmakers can raise taxes just like in 1977. They can reduce benefits like in 1983. The program can also be reinvented as it did in 2005. Since the mid-1990s, when the solvency problem first emerged, all three of these options have been discussed. The 1977 playbook seems most comfortable for Democratic legislators.
In all of their comprehensive solvency bills, they raise or eliminate the maximum taxable wage base in order to target affluent workers. These are the wages that are subject to the payroll tax.
A few bills propose raising the payroll tax to 6.2%. Other bills promote taxing investment income. Democrats, however, disagree on whether most new revenue should go toward solvency reform or benefits enhancement.
However, the Republican party has painted itself into a corner. It insists on not raising taxes. Lawmakers also claim they won’t hurt current beneficiaries. With a self-funded program like Social Security, it can be difficult to protect both taxpayers and beneficiaries. Certain groups will be required to pay solvency costs.
It is just a matter of which ones. There have been three comprehensive solvency bills introduced by Republican senators and representatives between 2010 and 2016. They all introduced bills to eliminate long-term actuarial deficits.
Social Security would have been fixed by any of these bills. Revenues would have once again fully supported benefits. According to Market Watch, six Republican solvency bills failed to gain much support in Congress, as they only attracted eight cosponsors.
But the Democratic solvency bill was co-sponsored by 208 House Democrats in 2019. In the years since 2016, Republican leaders have failed to propose a single comprehensive solvency plan.
The reason for this is that five of the six sponsors are no longer in Congress (all except Lindsey Graham). There is a need for new volunteers to take up the mantle in the Republican caucus.
Second, it is becoming more difficult to achieve solvency by reducing benefits each year. The retirement age was raised from 65 to 67 in 1983 by Congress (effectively reducing benefits). This change was implemented gradually over four decades. Currently, there is an urgent need for revenue. And there’s not much time left for gradual change-less than a decade.
Thirdly, both Trump as a candidate and later as the president promised not to cut Social Security benefits. Having their leader oppose benefit-cutting bills made it difficult for Republican legislators to draft bills.
Fourth, the Republican Party is gradually realizing that it can’t restore solvency without increasing Social Security taxes. Reducing benefits is one way to restore solvency. However, benefit reductions alone won’t work politically. Sadly, Republicans are unable to acknowledge that taxes are necessary.
Republicans might have taken the pledge when they were first running for office. There’s no point in being the only candidate in a crowded primary who opposes tax hikes. However, governing is difficult.
Without raising taxes, you must cut benefits. Once 2034 arrives, and the trust fund empties, Social Security benefits will be automatically cut, and that will go across the board.
Difficult Choices ahead for Voters
A while ago, Republicans thought reinventing Social Security would solve their problems. They proposed that the current pay-as-you-go system be replaced with a system where workers’ contributions would be diverted into individual investment accounts.
The Republican-controlled Senate and the Republican-controlled House, however, refused to consider such a proposal when Bush made the proposal in 2005. The key challenge was how to finance traditional Social Security while diverting worker contributions into individual accounts.
On Capitol Hill, Democrats and Republicans have deep differences on how Social Security should be fixed. Public opinion polls indicate that Social Security is widely supported by citizens on both sides of the aisle.
The fact is that sensible solvency reforms are widely supported by Democrats and Republicans, workers and retirees, the poor and the wealthy. Among these reforms is gradual taxation as well as modest benefit reductions.
So, voters are aware of the hard decisions ahead. They should also insist that their representatives draft and co-sponsor realistic proposals to fix Social Security. Voters can weigh these plans and go for them, providing the foundation to fix Social Security now.