Why Obama's Social Security Proposal Would Screw Over Millennials
Expanding a retirement program that's not fiscally solvent is no way to treat the young.
With blatant disregard for any type of basic math, President Obama recently called for an increase to Social Security benefits. Millennials, who pay into Social Security without realistic expectations of receiving their promised benefits, should be furious that neither the president nor the presidential candidates will tell the truth about Social Security's broken finances.
As President Obama argued in his June 1 speech in Elkhart, Indiana, "We can't afford to weaken Social Security. We should be strengthening Social Security. And not only do we need to strengthen its long-term health, it's time we finally made Social Security more generous, and increased its benefits so that today's retirees and future generations get the dignified retirement that they've earned."
There are two main problems with these claims. First, unless Americans are fine with possibly paying a 31 percent payroll tax (up from 15 percent today), entitlement programs cannot afford to maintain their current course—much less be expanded. Second, retirees receive far more than they pay in from the program commonly known as the "third rail" of American politics.
President Obama was light on the details of his proposed expansion. But one can assume that he is lining up to support the policy views of Democratic contenders Hillary Clinton and Bernie Sanders. Clinton wants to expand Social Security, while Sanders calls it "the most successful government program in our nation's history."
House Republicans, namely House Budget Chairman Tom Price, are making serious efforts to straighten out American's broken entitlement systems. Unfortunately, likely Republican presidential candidate Donald Trump promises he "will not cut" Social Security. Trump has promised to fully fund the program through higher GDP growth. But even if GDP growth magically shot up to 60 percent above the current long-term estimate (2.1 percent), the program will still end up insolvent.
Social Security remains popular—especially among seniors—but no level of public support changes the reality that the program is unfair to millennials. If nothing changes, Americans who retire after 2035 (the year the Social Security Old Age Survivors Insurance Trust Fund is projected to be depleted) will only receive about three-quarters of their promised benefits.
On the topic of promises, the myth that entitlements are "earned benefits" is one political talking point that simply refuses to die. Typical retirees, especially older ones, are receiving far more in benefits than what they contributed. For example, according to the Urban Institute, a married one-earner couple with average earnings that reached retirement age in 2000 is expected to receive back more than twice what they paid in. A similar couple that turned 65 in 1980 received 4.3 times what they paid in taxes. And those lucky couples in the same earnings situation that retired in 1960 received Social Security benefits that were over nearly 12 times their contribution levels.
It is true that Social Security payments provide the majority of cash income for 65 percent of seniors. But this statistic uses the wrong metric and obscures the troubling truth about the program. Of course retirees, who are by definition not working, have low cash incomes.
Additionally, Social Security does not just take from the young to give to the old—it steals from the poor to give to the wealthy. In 2011 (the most recent Census data available), the average wealth for a household headed by someone 65 years or older was 26 times the wealth of the average household headed by an adult under the age of 35. In 2009, during the depths of the recession, older households had 50 times the wealth of younger households. Some argue that this disparity in wealth makes sense. After all, older Americans have had the chance to work longer and accumulate more savings. However, back in 1984 this ratio was 10:1.
Since many seniors do not plan on moving out of their homes, perhaps it makes sense to exclude home equity from this comparison. But even after removing home equity, in 2011 the median net worth of households headed by an adult under the age of 35 was $4,151. In that same year, excluding home equity, the median net worth of households headed by someone 65 years and over was $27,322. This number for recent retirees (65 to 69 years old) was $43,921, more than 10 times what young households have.
President Obama had previously supported modest downward adjustments to Social Security benefit growth as part of a so-called "grand bargain" to reform America's finances. Common-sense solutions—such as using an updated inflation adjustment that is widely accepted as more accurate rather than the outdated model that overstates inflation—are apparently now off the table. It makes no sense to expand Social Security benefits faster than the increase in cost of living when the program is in such dire straits.
The truth is that seniors are getting a sweetheart deal that they simply did not pay for—and this imbalance places a major fiscal burden on younger Americans. It is long past time politicians stopped making Americans false, unfunded promises, and quit pushing the costs of their irresponsibility on to the next generation.