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Social Security Benefits Aren’t Earned If You Didn’t Pay For Them

I don’t generally buy into the “greedy-geezer” narrative when it comes to entitlement reform. And yet it’s hard to find a flattering description for a generation that demands to receive Social Security benefits that it refused to pay for. That’s in fact what happened over the past 30 years and presidential candidates from both political parties are giving in to older Americans’ demands. Generational fairness points toward Social Security reforms that fix Social Security’s $13 trillion-plus funding shortfall by holding the line on benefits rather than hitting younger generations with more taxes.

Americans have known for three decades that Social Security faced a long-term funding challenge, due to rising lifespans that boost the numbers of retirees and low birth rates that sap the number of new workers paying into the program. Following bipartisan reforms in 1983, Social Security within a few years began amassing new unfunded obligations. By 1992 Social Security’s Trustees were again calling for action to strengthen Social Security long-term funding, and in 1994 President Clinton and Congress appointed the first of many bipartisan commissions to consider options for reform.

All along, though, the options were clear: Social Security either needed more money to pay benefits or to trim benefits to the levels it could afford to pay. And there were many options to do so – raise the payroll tax rate or the maximum salary the tax applied to, increase the retirement age, cut Cost of Living Adjustments, means-test benefits for wealthy retirees, and so on. 

Indeed, in 2002 former Democratic Senator Bob Kerrey and Republican Senator Warren Rudman warned that a “do-nothing” plan on Social Security would result in dramatic across-the-board benefit cuts when the Social Security trust funds ran dry, as is projected for 2035.

And yet nothing is precisely what happened, despite major reform campaigns from both Presidents Bill Clinton and George W. Bush. Part of these presidential failures comes down to accidents of history: Clinton’s Social Security reform drive was hampered by the Monica Lewinsky scandal while Bush’s political capital had plunged due to the quagmire in Iraq.

But there was a more important reason: Americans themselves preferred to kick the can down the road. It wasn’t that they were unaware of the choices. In a 2005 Gallup poll, 62% of Americans acknowledged that it was impossible “to ensure the long-term future of the Social Security system without either raising YOUR taxes or cutting YOUR Social Security benefits.” And 8-in-10 Americans in 2005 agreed that reform was needed either in the next one-to-two years or in the following decade.

What was missing was a willingness by Americans to make sacrifices themselves. Only 37% of Americans in 2005 favored paying higher taxes themselves, only 29% were willing to accept lower benefits and just 35% supported raising the retirement age.

And it’s not as if our elected officials offered Americans many opportunities to pay more today in order to receive their full promised Social Security benefits. Congressional Republicans may have misjudged public sentiment, proposing numerous reforms that fixed Social Security entirely by reducing benefits. But Democrats, for their part, for years offered little until the recent Bernie Sanders-led movement to expand Social Security. When, in 2005, then Rep. Robert Wexler (D-FL) asked when Democrats would put forward their own Social Security proposal, Minority Leader Nancy Pelosi’s answer was, “Never. Is never good enough for you.” Wexler’s proposal, one of a tiny number made by congressional Democrats in the late 1990s and early 2000s, proposed to fix roughly half of the Social Security funding gap by raising taxes, with the remaining gap left unaddressed. Even that plan received zero co-sponsors from either party.

Of course, Americans were and remain willing to make “the rich” pay higher taxes and receive lower benefits, with support from around two-thirds of Americans in 2005. But there aren’t enough millionaires and billionaires to fix Social Security that way. Even if we applied Social Security taxes to all earnings – which means a 12 percentage point increase in tax rates paid by upper-middle class Americans making as little as $140,000 – Social Security would not remain solvent for 75 years.

Americans over the past several decades played a game of chicken on Social Security: refusing to accept tax increases themselves, but daring future generations to cut their benefits.

And older Americans’ game of chicken will very likely succeed. President Trump has supported paying full promised Social Security benefits. Joe Biden and Bernie Sanders go further, favoring expanding Social Security benefits. Even if the Social Security expansion movement flounders, as I expect it will once Americans’ long-standing reluctance to pay higher taxes reasserts itself, seniors will over their retirements receive tens of thousands of dollars in Social Security benefits that they could have paid for but didn’t.

The politics of Social Security are brutally difficult, which explains why the program went three decades without reform when Congress knew precisely what the problem was and the options for addressing it.

Nevertheless, Congress should attempt to limit the generational imbalance while forging a more effective and financially sustainable Social Security program. Cuts to low-income retirees aren’t good policy, not to mention politically impossible. In fact, I’ve proposed a Social Security reform plan that provides a true guarantee against poverty in old age, something that even Bernie Sanders’ plan doesn’t promise. But Congressional Budget Office data show that since 1979 the average retiree household’s inflation-adjusted income rose by 89%, over twice the 39% growth of salaries for working-age households. Most middle and upper-income retirees could survive just fine with slightly lower initial Social Security benefits and lower Cost of Living Adjustments after retirement.

“It’s unfair to cut our ‘earned benefits’,” older Americans will protest. But those benefits aren’t earned if you didn’t pay for them. Social Security faces multi-trillion dollar shortfalls that must be filled with higher taxes or lower benefits. By refusing to play their part, the Boomers will pass most of that bill to their kids and grandkids. Perhaps politics make any other outcome impossible. But we should be realistic about how we got here.

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