The Math on Social Security Doesn't Add Up

Social Security politics is like malaria—it never really leaves the body politic and it flares up without warning.

Thus, the absolutely unsurprising “revelation” in the Washington Post that demographics and economics have combined to begin the inevitable drain of the “surpluses” in the Social Security Trust Fund. In short, a few years earlier than anticipated, Social Security now pays out more each month in benefits than it takes in through payroll taxes.

The Social Security Trustees’ Reports of the past several years warned this would happen. The “news” is that it is happening earlier than the vast majority of analysts, politicians, and AARP said it would. Remember that the union/AARP line is: “Social Security is not part of the problem. It is running a surplus. It helps on the deficit front.” Those who have urged reform, in effect have urged policymakers to look at least a little bit into the future, have merely responded: “This is arithmetic. How long do you want to wait until the crisis hits?”

If delusional thinking only tainted the Social Security debate, perhaps policymakers could devise a simple solution. But Medicare, Medicaid, TRICARE for Life (indeed the whole notion of the all-volunteer army), federal pensions, and a whole host of other federal “entitlements” face the same problem—they are consuming almost all other parts of the federal budget.

The reaction of Congress so far has been predicable, stage-by-stage. The Kubel-Ross grief model. Denial, anger, bargaining, depression, and acceptance. For the past decade, defenders of entitlements have denied any problem existed. No matter what kinds of studies, done by any analyst, under any circumstances—“insolvency deniers” simply said, “No, it’s not true.” They have made climate change deniers seem almost balanced. Even when President Barack Obama, in 2009, hinted that he recognized that Social Security needed a fix, his own party turned on him and Obama responded, “Never mind.”

We entered the “anger” stage when President George W. Bush attempted to start his second term by concentrating on “solving Social Security.” After a year of trying, Bush gave up the lost cause and Republicans since then have carried the weight of “privatizing social security.”

The next stage—bargaining—seems to have started.

“Okay,” the deniers say, “perhaps we need to look at Social Security’s future, but not within the context of budget balancing, since it has a huge surplus right now and isn’t part of the problem. But, maybe we need to do something to insure 75-year solvency.”

Our view is simple—the bargaining will go on a long time and lead to very little. That will bring Americans to the “depression” stage, when the Social Security Administration admits that it will not be able to pay social security recipients their monthly check on time and in full. This usually happens, if the 1983 experience is any guide, within a year of the “broken promise.” Policymakers and deniers will then demand “change and reform,” usually involving higher taxes and limited benefit changes.

The acceptance stage takes the form of a “new and improved” system. In the 1983 reforms, the new system allowed a buildup of large surpluses to meet future demand. A small change in the retirement age and tax increases, along with a strong economy and relatively manageable increases in recipients, led to almost 30 years of solvency.

This time, to steal a phrase now famous in economics, “it will be different.” Huge new recipients will enter the system in the next 20 years; tax increases will be as popular as typhoid fever; a slowly recovering economy will demand changes more fundamental than “deniers” will think necessary.

And, just before SSA has to cut checks by 10-15%, or delay payments by a month, or some combination of those two options, the “deniers” will say, “See, it isn’t a problem. Those evil, Granny-hating Republicans and Trustees and Wall Street analysts, they just wanted to kill the program all along.”

This same five-stage process seems at play in the work of the Joint Select Committee on Deficit Reduction, which now has less than a month to complete its work. Denial and anger stages seem to have passed; now the bargaining has begun. Since the JSC is very unlikely to address the root, structural problems of federal entitlements, we will still have to pass through the depression and acceptance stages.

Just think—if policymakers and lobbyists for entitlements had just been able to grasp arithmetic in grammar school, how much better our federal fiscal situation would be.