Before DC Democrats consider breaking trillions in new spending, they should focus on propping up the Social Security Trust Fund.
This month the budget office of the Congress published detailed figures on its long-term outlook for social security. It’s sobering – at least for those who are paying attention. The trust fund will expire in 2032. The disability insurance trust fund runs until 2035.
Social security financial problems are often dismissed as a distant future problem. It’s time to stop hesitating.
Social security is actually a cross-generational wealth transfer program. The recipients do not get their own money back, but the contributions of the current employees. The trust fund is a form of fiscal fiction. In theory, excess social security taxes end up in the proverbial “locker box” to pay future bills. In reality, the federal government is taking this money and replacing it with promissory notes.
Otherwise, if the federal government were in a strong budget position, it might not be so worrying. But in February the CBO projected that Washington will have a deficit of $ 2.3 trillion this year. The CBO also predicts that federal debt will exceed U.S. gross domestic product this year.
Without changes, social security will increase the amount of debt significantly over the next few decades.
“If the current laws were to stay in place, the actuarial deficit of the program would be 1.7 percent of GDP or 4.9 percent of taxable wages over the next 75 years,” says the CBO.
Raising the Social Security income tax ceiling is a proposal, but that would further undermine the individual contribution-benefit ratio and potentially affect political support for the program among wealthier Americans. Benefit cuts could also be an option, but this will not be popular with younger workers. Also, any step in this direction should protect current beneficiaries and those approaching retirement age so as not to disrupt their financial planning.
The CBO predicts that a 30 percent benefit cut to future benefit recipients would require a 36 percent benefit cut.
Waiting longer makes things worse. In 2032, a 33 percent discount would be required for all attendees, or 45 percent discount only for future attendees.
With eligibility spending making up a larger chunk of the federal budget, one might expect Washington politicians to be cautious about allowing trillions in new spending. But you would be wrong. Democrats appear determined to push through a $ 3.5 trillion spending package that could skyrocket inflation and debt.
As George W. Bush learned the hard way, the popularity of social security makes reform difficult. But these numbers show that change is necessary – and the sooner, the better.