The myth of Social Security insolvency

The right wing in the United States has been executing a surprisingly successful public relations campaign to convince individuals that the Social Security system is somehow in dire straits. Paul Ryan — who for some reason continues to be taken seriously — has narrowly focused on Social Security along with Medicare and Medicaid as the chief culprits dragging down federal fiscal policy. Republican presidential candidate Rick Perry has made his mark just a few days into his official campaign calling Social Security and the other major entitlements Ponzi schemes, implying that they are inherently unsustainable and destined to collapse.

Every single thing the right wing has been floating out about Social Security is demonstrably false. The tired efforts that have been made to lump Social Security into the deficit mix are the most dishonest of the false claims. As Senator Bernie Sanders points out, Social Security has never contributed a single penny to any deficit in the 76 years it has been around. Social Security is sustained by a dedicated payroll tax that fully funds the program separate from annual discretionary budgets.

Additionally, Social Security is not an inherently flawed pyramid scheme either. Although I cannot believe it is necessary to point this out, the difference between Social Security and actual pyramid schemes is that Social Security never runs out of new enrollees to sustain the system: people continue to have children. While adjustments to outlays or revenue might be needed depending on population dynamics, the system itself is as inherently sound as the propagation of new generations is.

The actual issues with the solvency of Social Security are extremely minor. The massive Social Security trust fund will allow the program to pay out benefits at the current level until 2038. At that point — absent modifications to the program — revenues will only be able to pay out 81 percent of promised benefits. That is to say, if the federal government did absolutely nothing over the next 27 years to shore up Social Security, a one time cut of 19 percent in 2038 would make the program solvent into the infinite horizon. This would be a sub-optimal way forward, but it underscores how solid Social Security is: even at 1.9 workers per retiree, the program could pay out at 81 percent of the current, inflation-adjusted rate without increasing revenue at all.

Contrary to the doomsday naysaying of the right wing, any number of small modifications could be made to completely close the forthcoming Social Security shortfall without dramatic one-time benefit cuts. According to the Congressional Budget Office, increasing the FICA payroll tax from 6.2 percent to 7.8 percent right now would completely close the coming gap. So a revenue-only solution which kept the current regressive payroll tax structure in place would only require levying a 1.6 percent tax. Ending the payroll tax cap which exempts every dollar made over $106,800 from payroll taxes would, by itself, close the shortfall.

In addition to these revenue-focused solutions, modifications to benefits could also be considered. One plan brought up in the debt-ceiling theatre was to change the way the Social Security cost of living adjustments are made. By using a different index for inflation, the program could slow down the rate of benefit increases indefinitely, causing outlays to be 9% lower in 30 years than they would be under current law. This plan has attracted some legitimate criticism, but it demonstrates how trivial the trumped up warnings about Social Security insolvency are.

Dozens of mixtures of these different policy approaches would make the program solvent into the infinite horizon. Despite the ease with which the shortfall could be solved, I am doubtful the right-wing would ever do anything to make it happen. Right-wingers like Perry, Ryan, and Bachmann would much rather neglect the easy solutions in order to run the program out of money so that they can justify the GOP’s 50-year effort to finally kill the most successful social program in US history. That they want to kill the program and other entitlements like Medicare and Medicaid is clear enough. Their reasoning for doing so however — that the programs are irretrievably doomed to bankruptcy — is completely baseless.