People have gotten a lot more interested than usual about Social Security's rickety finances lately, thanks to the Social Security trustees' recent report saying that the system's trust fund will shrink this year for the first time since the 1980s.
This problem has been building since 2010, when Social Security began to spend more cash than it took in from workers, employers and beneficiaries like me who pay income tax on some of their retirement benefits. The overall public reaction to Social Security’s negative cash flow, which I (and other people) have written about for years, has been ... a collective yawn.
I sure hope people will pay more attention this time around.
Last year, the negative cash flow for Social Security's retirement and disability programs was $80 billion. That meant the Treasury had to borrow $80 billion in the financial markets so it could redeem Social Security trust fund securities and keep benefit checks from bouncing. That's serious money even at a time of federal budget deficits approaching $1 trillion.
But rather than focusing on the projected trust fund shrinkage, which is only a symptom of the system's financial problems, let's look at the big problem: Social Security as a whole.
There are numerous ways — including increasing the interest paid on the Treasury securities that the Social Security trust fund holds — that could be used to keep benefits flowing without addressing the system’s underlying problems.
But solving Social Security problems in real ways rather than with fantasy finance fixes will matter even more in the future than it matters now — and it matters plenty now.
More than half of Social Security retirees get more than half their income from Social Security. And future retirees' needs are likely to be even greater than current retirees' needs are because of the way companies are offloading retirement obligations onto their workers.
Social Security retirement benefits, you see, are supposed to be part of a three-legged stool whose other two legs are pensions and savings. But private-sector pensions are disappearing. Social Security says that fewer than 15% of private-sector employees earn pension benefits, compared with more than 40% in 1979.
Today's Social Security problems stem from flaws in the 1983 fix that was adopted when Social Security's retirement trust fund was flat broke and had to borrow money from the disability trust fund to continue paying benefits.
Congress agreed to raise the Social Security contribution rate, raise the full-retirement age and tax benefits for higher-income beneficiaries. This was supposed to keep Social Security solvent until the late 2050s. Now, the trust fund is projected to be tapped out around 2035.
What happened? Two major factors are that wage growth and gains in output per worker have both been below the 1983 projections. In addition, until last year disability payments payment grew more rapidly than expected.
Social Security is a very big — and very expensive — deal for most Americans, especially the middle-class who have a huge stake in the program.
The Tax Policy Center says that more than two-thirds of today's workers pay more in Social Security and Medicare tax than in federal income tax. (I'm including the employer's share of Medicare and Social Security because conventional economic wisdom holds that money would otherwise go to workers.)
By my read of the TPC stats, the break-even income point at which income tax exceeds Social Security tax is about $150,000.
The longer we wait to fix Social Security — can you imagine the dysfunctional doofuses in Our Nation’s Capital allowing the trust fund to go broke and have Social Security benefits sliced by more than 20%? — the greater the burden that will fall on younger people to help pay for older people.
That will continue the current, unfortunate system of Uncle Sam lavishing federal money on old people like me, while skimping on younger people like my grandkids.
Last year, Tax Policy Center co-founder Gene Steuerle and I proposed ways to adapt Social Security, created at a time in which men worked and wives were expected to stay home, to the modern era. You can see them here.
The only proposal I’d change is that rather than eliminating the bonus currently paid to retirees with kids under 18, I’d place an income limit on it. That way, non-needy people like President Trump (who’s got a 13-year-old son and who Steuerle and I think gets a bonus payment of about $15,000 a year) wouldn’t get extra money, but lower-income retirees who’ve adopted young children would get help.
A final word: A lot of people think that Social Security is a savings program. In fact, it's an intergenerational transfer program, in which I paid for my parents' benefits, my kids are paying for mine, my grandkids will pay for my kids.
The program, with an average retirement benefit of about $18,000 a year, isn't designed to make retirees well-off. It's designed to keep them from being desperately poor.
It’s done a great job of that for 80 years. Let’s hope that today’s problems prompt a fix so that Social Security is still around 80 years from now.
Allan Sloan is a columnist for The Washington Post. He is a seven-time winner of the Loeb Award, business journalism’s highest honor.