Nothing is new about the most recent Social Security Trustees report released last Tuesday:
- Social Security has a long-term financing shortfall. Payroll contributions are projected to fall far short of what’s needed to support a growing beneficiary population.
- By 2034, Social Security will completely deplete its reserves and will no longer be able to pay 100% of beneficiaries’ scheduled benefits.
- We should not wait until insolvency occurs to take this problem seriously. We need to get ahead of this problem by making changes right now.
Unfortunately, the Trustees have said the very same things year after year– seemingly to a completely empty room.
Still, this year’s report might be the wake-up call our lawmakers need to finally begin heeding the Trustees’ warnings.
In their 2018 report, the Social Security Trustees reveal that we’re imminently approaching a critical milestone in Social Security’s insolvency timeline.
Before the year is out, Social Security benefit payments will exceed payroll tax contributions. To make up the difference, the Trust Fund will need to redeem IOUs from the Treasury and begin using its surplus stores to meet payments.
Put more simply: this year, for the first time since 1982, we’ll have to dip into the Trust Fund to pay all of our beneficiaries. Under our current system, Social Security can no longer pay for itself.
In 1982, facing a similar situation–and with an insolvency date far nearer than 16 years (at the time, it was projected insolvency would have happened in July 1983)–the Reagan Administration responded with a huge bipartisan reform package, including both benefit reductions and payroll tax hikes.
Though neither strategy is ideal, especially when enacted quickly, the reforms passed that year were sufficient to keep Social Security funded then and well into the future. The combination of reductions and tax increases created the surplus we’ll be dipping into today.
At face value, it’s a success story. Two warring parties recognized a dire public concern, came to a compromise, and did what they had to do to fix the problem. Few would argue in our present political climate that this alone isn’t somewhat miraculous.
But it’s also an example of a few things we can’t do again.
Right now, we have 16 years to get ahead of a much larger problem than Reagan had on his plate in 1983. Our retiring population is much larger. People are living longer. And almost nothing about being alive in 2018 is cheaper.
Even waiting until just three short months before insolvency, Congress had more viable options to correct the problem than we have right now. For example, nobody wants or likes benefit cuts, but in 1983, average retired couples were able to collect three times in benefits what they contributed while working. Immediate benefit cuts were not as damaging to retirees as they would be today.
But at this point, we should know waiting until the last second isn’t the way to go. Our demographics have changed, our economy has changed–what worked for Reagan is not going to work for us. We need to use our time wisely as we come up with a solution.
Secondly, we can’t ignore that these reforms weren’t a path to true solvency. What several of these changes did was buy a few more decades until history repeated itself, but with a much larger retiree population. It was asking future retirees to give more and take less until they eventually inherited the Social Security insolvency problem themselves.
Well, here we go again.
With 16 years on the clock, our lawmakers still have time to put the partisan ire to bed, put their heads together, and get creative with Social Security solutions–preferably with something that doesn’t just kick a can down the road for a few decades.
1982 was the last time we had to dip into our reserves to pay our seniors. And 1983 was the last time Congress passed any kind of impactful Social Security legislation.
It might be news that payroll taxes no longer foot the bill for Social Security this year, but it definitely shouldn’t be news that Congress needs to get to work and quickly.