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Debt Ceiling Standoff Questions Will Social Security Be There for You?

…or Medicare, or Medicaid? A look at one at a time

The 20-or-so of the hard-right faction in the House of Representatives refuse to raise the debt ceiling without significant cutbacks to Social Security, Medicare, and Medicaid. The White House refuses to negotiate. They are "fiscally demented", said President Biden in a Martin Luther King Day speech. "They don’t quite get it".

Treasury Secretary Janet Yellin says we just bumped up against the ceiling. Her department is looking for what she called "extraordinary measures" to enable the country to keep paying its bills for a few more months.



The squad in the House holding Speaker Kevin McCarthy hostage to its demands needs no individual profiling. They are of a piece. All but three were endorsed by Donald Trump, and 14 of the 15 who were members of Congress on Jan. 6 were among the 139 representatives in the House who voted not to certify states' electors in order to keep Trump in power. (And 118 of the 139 election deniers were re-elected). Added to their willingness to cause a government shutdown and a United States default on paying its debts is reportedly a three-page list of other demands McCarthy has acceded to that is apparently too self- incriminating for him to release.

As for Mr. Biden's accusation of fiscal dementia, in his first two years his administration has run up $4.15 trillion in deficits, $1.9 trillion of which was the American Rescue Plan enacted right after he took office. A continuance of pandemic stimulus just as the economy was rebounding, it is widely considered to have been excessive and contributing to the first serious inflation in 40 years.

The debt ceiling, the amount the government is permitted to borrow to pay its already incurred obligations, has routinely been raised in the past without fuss – three times by many of these same Republicans during the Trump administration – and a few moderate Republicans will probably join all the Democrats to save the day just before the nation teeters over the brink, putting an end once again to the Kabuki performance. A government shutdown in the cause of reducing social program benefits that the public likes will not be a winner at the polls in 2024.

While difficult to give House Republicans any credit – their very first act in the 118th Congress was the hypocrisy of voting to cancel the $80 billion the IRS is to receive to help the agency increase tax receipts to reduce the deficit! – but the gang of 20 at least has raised the question of unsustainable entitlements that Congress will not face. Not sustainable brings to mind Herb Stein's common sense maxim — he was chairman of the Council of Economic Advisers under Nixon and Ford — "If something cannot go on forever, it will stop."

So let's take a look at Social Security.

For many decades, the Social Security Administration (SSA) took in more from payroll taxes than it paid out as benefits to seniors and those with disabilities. The difference was loaned to the government in exchange for an IOU referred to as a trust fund. As the bulge of the post-World War II baby boomer generation began to retire, that finally reversed. Beginning in 2018, benefit outlays began to exceed tax receipts and the SSA had to begin drawing down the difference from the government trust fund to cover the shortfall. It is estimated that by 2035 the trust fund will have been drained, leaving only the income of payroll taxes. Benefits will have to be slashed by 21%, possibly more. Unless Congress acts, but that's the problem.

The dozen years will go by quickly. Where will that leave you?

The country was faced with this same threat in 1983, but Congress raised the payroll tax and the eligibility age, bolstering revenues enough to keep the system in surplus for three-and-a-half decades.

Some facts

An average of 66 million Americans receive a Social Security payment every month totaling over $1 trillion a year. The payout provides about 30% of the income of the elderly. But among 40% of those beneficiaries, Social Security accounts for 50% or more of their income. For 12% of men and 15% of women beneficiaries, Social Security is 90% or more of their income. A 2017 study by the Center on Budget and Policy Priorities reported that 9% of all retirees lived in poverty but that would have been 39% had there been no Social Security. If the 21% cut is allowed to happen, millions will be reduced to poverty.

Lower birthrates and longer lives combined to expand the number of eligible recipients. In 1970, the median age of an American was 28.1 years. In the half century since, the median age became 37.9 years. By 2035, the number of Americans 65 years old and older will exceed those under age 18 for the first time in our history, and by 2060 this cohort will nearly double in size.

Pretty uniformly across all age groups, 78% of Democrats and 68% of Republicans oppose any cuts in benefits despite that benefits to retirees are paid from the payroll taxes collected from those at work today.

There are fewer workers supporting more retirees. The boomer population isn't the only reason; women are bearing children later in their lives or foregoing motherhood — the "baby bust" it's been called. In 1950, the payroll taxes of 16 workers supported each senior. The lower birthrate together with increased longevity has led to a mere 3 workers supporting each retiree today, and the swelling of the senior population group by the postwar baby boom will reduce that number to 2 per retiree, an insupportable burden on young workers.

What's to be done?

It should be clear that we cannot work for 40 to 45 years paying an eighth of our income into the system and then expect to receive a substantial payout for another 25 years. Any rescue of Social Security needs to be a thorough overhaul.

A Gallup poll found that 74% of Americans hope to work past 65, but how many businesses are eager to hire people in their late years? (There are many reasons they should, but that is its own subject).

Short of raising taxes on today's wage owners to unconscionable levels, which the Social Security trustees said in 2018 would have to be an "immediate and permanent" payroll deduction of 15.18% to solve the 2035 problem, trimming of benefits to well-off seniors must be on the table. How can it be justified to further favor those at the older end of the age spectrum who spend their days at leisure by further taxing the younger generations who spend their days at work? For the Social Security system to be self-sufficient, need must figure in. Benefits must be reduced relative to beneficiaries' other income and liquid assets, and at some income level early along that scale, benefits must decline to zero for the cost savings to make a difference in the 2035 equation. The young and middle-aged cannot go on being taxed to give money to those who do not need it.

This is especially fitting when we admit that, given increased longevity, now just over 79 years, the average beneficiary will receive — despite adjusting their contributions through life for inflation and crediting a modest rate of interest all along — considerably more in Social Security benefits than they ever paid into the system. As they live on, the old folks become parasites.

Social Security income isn't free and clear. An argument will be that Social Security income is already taxed in proportion to other income. But the computation just increases one's tax. The benefits themselves are not curtailed.

raise the cap

For 2023, an individual's first $160,200 of income will be subject to the 12.4% FICA or Social Security tax, with half paid by the employer and half by the employee (therefore the entire 12.4% for the self-employed in this contractor and gig economy employers so love). This is a regressive tax, applied as it is to the very first dollar of a minimum wage employee and not at all to income beyond $160,200. Mindful that it is a tax with no "earmarking" or "property rights" to one's contributions, it could be argued that there should be no cap, that all income should be subject to FICA's reach. That would never get through Congress, of course, where they would be voting to tax themselves and the contributors to their re-election, but it's worth making the point.

RAISE THE AGE OF ELIGIBILITY

That's already been done, but not enough. In the 1983 fixes, the age was raised from 65 to 67, but starting only several years after so no one in Congress would be voted from office, and then ratcheting up so slowly that only a 10th of a year of age was added for each calendar year, such that 67 won't be reached for some until 2027. Two percentage points across 44 years.

Given the long retirements afforded by longer lives, the age for Social Security eligibility must be raised further: 70 is often proposed. But there's a problem. Those who worked physical jobs all their lives — sanitation workers doing heavy lifting, roofers nailing shingles, commercial fishermen hauling traps and nets — are unable to go on working to that age to support themselves. They need Social Security relief sooner. They are joined by those in the bottom income rungs who need Social Security assistance the most and who, for one or another reason — those physical jobs did physical damage, they weren't able to afford proper healthcare, and so forth — have not seen their life expectancy rise as much as the more affluent with their physically undemanding jobs and money enough to pay for better healthcare. For men now at age 50 and at the top of the wealth and income scale, life expectancy is 88 years. Men now at age 50 at the bottom of the income ladder can only expect to live to 76 years. Data for women shows a similar spread.

That says that with full benefit eligibility now at 66, those at the bottom will receive only 10 years of Social Security benefits whereas those at the top (many of whom may not even need the added income) will receive benefits for 22 years. It should be clear that the current schema is dramatically unfair.

By postponing eligibility and trimming benefits, both in proportion to wealth and income of those who are better off, we could restore some fairness. But eligibility cannot be postponed to age 70 for those at the other end of the income scale. And for those physically unable to work late in life, the Social Security calculus might factor in a new metric — how Americans have made their living. Employers submitting payroll deductions to the SSA would tag them with a 3-level rating characterizing the employee's job — physically demanding to moderate (such as on one's feet all day) to undemanding. Alongside one's income history would be this point score, with those who spent most of their working years in physical work scoring highest and thus earning earlier benefit eligibility, with those who scored lower for having done less or no physical work earning later eligibility.

There have been a number of other proposals to fairly include those left out. Women are likely to have spent uncompensated years as caregivers, whether to infants or older family members. Most other industrialized countries credit some years of caregiving when calculating retirement benefits, says a Boston College survey. That's entirely missing in this country. A bill introduced by Chris Murphy, Democratic senator from Connecticut, would award up to five years of figurative wages to Social Security scorekeeping to those who provide at least 80 hours a month to "parents, spouse, domestic partner, sibling, child, aunt or uncle".

It gets complicated, but it must. Social Security needs to be more finely calibrated to fit the needs of changing demographics and evolving American life.

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