Failing to Reform Social Security Means Mandatory Cuts
Social Security will become insolvent in the early 2030s if Congress does nothing.
When President Joe Biden sparred with Republicans during his State of the Union address in February, he vowed to veto any attempt at cutting Social Security benefits. Yet the budget proposal he unveiled in March lacked a plan to avert the mandatory Social Security benefit cuts that are quickly approaching.
Social Security will become insolvent in the early 2030s without policy changes, but no one in Washington wants to make those changes. Do nothing, and benefits will need to be cut by about 20 percent across the board within a decade or so, according to estimates by the Social Security Administration's trustees.
If your ship is taking on water, you can try bailing it out, which in this case means changing the program's parameters to better balance revenue and spending. Or you can board the lifeboats, which in this case means finding an alternative way to help Americans plan for retirement before the current system sinks. Biden's budget doesn't give Americans a bucket or an oar.
The president's $6.8 trillion proposal includes billions of dollars in new spending and higher taxes on wealthy Americans and corporations. While one of those proposed tax increases would go toward shoring up the finances of Medicare, which is also rushing toward insolvency, the budget plan does not even gesture at mitigating the Social Security crisis.
Biden has even retreated from a campaign promise to lift the existing cap on income subject to the payroll tax that funds Social Security. That's good, but the absence of an alternative proposal means we are one presidential administration closer to a crisis that becomes harder to avoid each year.
Here is one idea: Just scrap Social Security entirely. That would relieve younger workers from funding benefits for older, generally wealthier Americans and allow them to invest as they see fit. A 2016 Tax Foundation study found that, for all except the lowest-earning workers, private retirement accounts were more lucrative than Social Security benefits. A worker who earns average pay and saves only 10 percent of his salary in a standard tax-advantaged account will end up with annual retirement income three times more than what Social Security offers.
Before elected officials rule out privatization, they should consider that when the program started, there were roughly 16 workers for every beneficiary. That ratio is now less than 3 to 1. The math will get worse as the country ages and household sizes decline. (For more on that, see "Storks Don't Take Orders From the State.")
Keeping Social Security solvent is less important than ensuring that Americans can enjoy a stable retirement.