All is not well with the Social Security system.
According to the annual report of the Board of Trustees of Social Security, “The 2012 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds,” (PDF) Social Security’s expenditures have exceeded its noninterest income since 2010. Although the Social Security trust fund’s assets are currently being redeemed to offset the cash-flow deficit, these redemptions will be less than interest earnings through 2020. After 2020, the Treasury Department “will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033.” At that point, it is estimated that “tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2086.”
But if we ignore accounting fictions like interest earnings and nonexistent trust funds — and instead look at some real numbers — we can see just how insolvent Social Security really is.
For fiscal year 2012, according to the Treasury Department’s annual report, the “Combined Statement of Receipts, Outlays, and Balances of the United States Government,” the total revenue for Social Security was $569.5 billion, and the total expense was $773.3 billion. That is a deficit of $203.8 billion. Social Security is the largest item in the federal budget, accounting for 22 percent of all federal spending.
The problem with Social Security (on a practical, not on the more important philosophical level) is simply one of numbers. At the end of December of last year, 57,953,542 Americans (retirees, widows, the disabled, and children) were receiving Social Security benefits of some kind. At the end of March of 2013 — just three months later — 58,372,278 Americans were receiving benefits. That is an average increase of 139,579 per month or 4,653 per day.
Clearly, Social Security in its present form is unsustainable. The question, then, is what is the future of Social Security?
The American Association of Retired Persons (AARP) recently examined this very question in “The Future of Social Security: 12 Proposals You Should Know About.” After stating that Social Security is facing financial challenges because people are living longer, and that “estimates indicate the program will be able to pay full benefits for the next 20 years, but only 75 percent after that,” the AARP lists 12 proposals:
• Raise the Full Retirement Age
• Begin Longevity Indexing
• Recalculate the COLA (Cost of Living Adjustment)
• Increase the Payroll Tax Cap
• Eliminate the Payroll Tax Cap
• Reduce Benefits for Higher Earners
• Increase the Payroll Tax Rate
• Tax All Salary Reduction Plans
• Cover All Newly Hired State and Local Government Workers
• Benefit Improvements
• Increase Number of Years Used to Calculate Initial Benefits
• Begin Means-Testing Social Security Benefits
Summaries of each option are then provided, “accompanied by two opinions that AARP commissioned from experts whose views typically represent different sides of the issues.” The experts are a conservative, David John of the Heritage Foundation, and a liberal, Virginia Reno of the National Academy of Social Insurance.
The responses of John and Reno are fairly predictable as far as conservative and liberal attitudes toward Social Security go. But their opinions illustrate two misconceptions about Social Security that both liberals and conservatives hold dear. One, that it is the proper role of government to operate a retirement system, maintain a safety net, and keep people out of poverty. And two, that Social Security is an earned right instead of a welfare program.
Take, for example, their responses to the proposal to means test Social Security benefits. John likes means testing because “the program should provide monthly benefits only to retirees who have less than a certain amount of non-Social Security annual income.” He adds that “Social Security would continue to be insurance against retirement poverty for everyone, but would focus its benefit payments on those who really need them.” Reno calls means testing “a huge breach of faith with working Americans who earned their benefits by paying in over the years.” It would “change Social Security from an earned right to welfare,” she says.
There is a 13th proposal that was not mentioned by the AARP, but it is one that has been around a long time: the complete and permanent elimination of the Social Security program. With respect to this point, John and Reno would undoubtedly and wholeheartedly agree on two things: One, the program may need to be “reformed” and “saved,” but should not be done away with; and two, all workers should be forced through payroll taxes to fund it. From a libertarian perspective, however, because Social Security is an intergenerational wealth-redistribution scheme, the program should simply be abolished in its entirety.
The problem with the AARP’s study is that the organization never solicited the opinion of a libertarian as an alternative to the liberal and conservative positions.
Because libertarianism is grounded in the nonaggression principle — that it is always wrong to threaten or employ violence against someone except in defense of one’s person or property — libertarians argue that Social Security isn’t just an inefficient, destructive, unconstitutional program that fosters dependency on the government and shifts responsibility from the individual to society; it is fundamentally immoral, coercive, and illegitimate.
Proposals to reform Social Security by adjusting benefits, the tax rate, the tax cap, the tax base, the COLA, or the retirement age are just proposals to fine-tune the welfare state.
On a philosophical level, the views of liberals and conservatives on Social Security are basically the same. Responding to the rumor that the president’s budget might include a provision to lower Social Security annual benefit increases, the left-liberal Sen. Bernie Sanders issued this statement:
Millions of working people, seniors, disabled veterans, those who have lost a loved one in combat, and women will be extremely disappointed if President Obama caves in to the long standing Republican effort to cut Social Security and benefits for disabled veterans and their survivors through a so-called chained CPI. In 2008, candidate Barack Obama told the American people that he would not cut Social Security. Having him go back on his word will only add to the rampant political cynicism that our country is experiencing today.
But here is a “conservative” Republican, the darling of Tea Party groups, Sen. Ted Cruz, speaking on the future of Social Security and its cousin Medicare:
I’m encouraged by any steps that President Obama is taking to save and preserve Social Security and Medicare.
I think it should be a bipartisan priority to strengthen Social Security and Medicare to preserve the benefits for existing seniors and to enact fundamental reform to ensure that those programs remain strong and vital for generations to come.
Liberal interest groups protested outside the White House the day before President Obama released his budget. In an NPR news story, an unidentified protestor can be heard saying, “Real Democrats do not cut Social Security.” Evidently, real Republicans don’t either.