Very few scientists or science writers are so wealthy that they can ignore what happens to Social Security, so you might want to read this. Once again, despite its immense unpopularity, our political betters including some Democrats and the Obama administration, are talking about long-term cuts in Social Security. Essentially, by switching to a new cost-of-living formula, the chained CPI, in real dollar terms, Social Security payments twenty years from now would be about twenty percent lower. Keep in mind that the average monthly benefit is $1,203.72, so have fun knocking twenty percent off of that. The maximum monthly benefit is $2,513. By the way, to receive the maximum benefit you have to retire at seventy, not sixty five.
So if we’re going to cut what are pretty meager benefits, we better have a damn good reason. If you follow this at all, you’ve probably read that in twenty-some years, the Social Security Trust fund will be empty (right now, it has over $2.5 trillion in treasury securities–yes, the U.S. government owes money to itself. Different post though). What that will mean is that Social Security would become a ‘pay-as-you-go’ system: Social Security payments would only be financed by payroll taxes and have to be cut around twenty percent.
But, as is the case with all estimates, one has to consider the assumptions used in these estimates–a point economist Dean Baker has been making since the mid-1990s. For this shortfall to materialize, according to these models, we must have twenty–plus years of historically dreadful and unprecendented GDP growth–the kind of growth that was only found at the worst years of the Great Depression and our Great Recession. In other words, if Social Security is depleted, we’ve gone really far off the rails–and that would be the real crisis.
We’ve seen this before with Medicare, where the ‘sky is falling’ Doomsday scenarios for Medicare failed to materialize. The Social Security fearmongering has been going on long enough that the predictions of the early 1990s that Social Security would be ‘bankrupt’ in the 2010s have come to pass–if by ‘bankrupt’, you mean having $2.6 trillion in assets. That’s why I’ve dubbed the length of time between a Social Security prediction and the program’s incipient doom–twenty to thirty years–a Samuelson unit (named after journalist Robert Samuelson who is the most idiotic of the bunch–and who bears no relation to economist Paul Samuelson). It’s like Zeno’s spear: it never hits the wall.
If you do want to deal with these doomsday scenarios, then, instead of cutting benefits, one could increase or remove the cap on taxable income (payroll taxes are capped). But cutting what are paltry benefits to begin with by twenty percent?
So once again, rank-and-file Democrats will be forced to oppose much of their party’s leadership (and, of course, the entire Republican Party) to stop a flawed reaction to a non-existent problem. As Atrios noted, if Democrats do ‘save Social Security’, the game is rigged such that there will always be a crisis (boldface mine):
The other fantasy is that if you pass some sort of plan which gets Social Security in surplus for the next 75 years according to the SSA then you get credit for “saving” Social Security and that the issue will be then off the table until the end of time. What will happen in practice is that the trustees will inevitably make minor and completely reasonable tweaks to the assumptions underlying their projections so they can once again have the trio of “nightmare,” “middle ground,” and “everything’s awesome” scenarios, with the middle ground scenario showing problems at some point in the future. Then the pain caucus will be back to tell us just how much granny needs to starve and Wall Street will return to siphon up all the money into their gaping maws.
Of course, what isn’t said is that increasing wages and lowering unemployment would increase payroll tax revenue and keep the Social Security Trust Fund ‘solvent.’ Odd how that isn’t mentioned much….