The Social Security Reckoning Is Finally Coming - The Atlantic

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Americans have been hearing about the looming demise of Social Security for decades. The number of old people receiving benefits has been increasing much more quickly than the number of working-age adults whose taxes pay for those checks. Yet politicians have let the problem fester for so long that the public could be forgiven for thinking that the crisis would never actually arrive.<br>But it’s arriving. For the past 16 years, Social Security has paid out more than it has taken in. This has required dipping into its trust fund, built up over the decades when the Baby Boomers were in their peak earning years. That fund is on track to run out by 2032. When it does, benefits will have to be cut by an expected 22 percent across the board to line up with the tax revenue that funds them.<br>Pretty soon, politicians won’t be able to kick this can down the road anymore. Senators elected this November will be in office in 2032. So will the next president. They will have no choice but to come up with a way to save the federal government’s largest and most popular program, lest they be blamed for its partial collapse. The available solutions are politically tricky but not particularly mysterious. They involve raising taxes, increasing the national debt, and cutting benefits, or some mix of the three. Even if our leaders settle on a way to keep Social Security solvent, however, they are unlikely to address the deeper problem underlying the budgetary one: A program designed to reduce poverty has morphed into a transfer of wealth to the richest members of our society.<br>In 1935, when the Social Security Act was signed into law, the average person entering the workforce could be expected to die at about 65 years old. Those who lived past that age tended to be too disabled to work, leaving them reliant on their children, if not a local charity or poorhouse. Social Security was designed to ameliorate this problem by levying a tax on workers and their employers, and paying benefits to the elderly roughly in proportion to how much they earned during their career. When the checks first went out, in 1940, the average recipient received $22.60 a month, or about $550 in today’s dollars. Such payments did not require too much sacrifice—just a 1 percent tax on the first $3,000 of a person’s earnings, matched by their employer—because there were many times more workers than there were beneficiaries.<br>The program ballooned over time. Congress voted repeatedly to expand benefits faster than inflation. But the biggest changes weren’t purposeful. Because benefits are proportional to what a retiree earned during their working years, America’s increasing salaries necessarily made the program grow. So did rising life expectancy. The average 65-year-old now has about 20 years left to live, up from 13 years in 1940. Meanwhile, the pool of workers paying into the system has not kept pace. Fertility rates have fallen, and fewer babies mean fewer workers in the future. The number of workers for each beneficiary has gone down 24 percent since 1990, as more and more is being asked of a smaller share of the population.<br>Idrees Kahloon: An oligarchy of old people<br>The unfortunate fact is that Social Security was never guaranteed to work forever. The tax formula is simple: Each worker, along with their employer, pays 6 percent of their income, up to $184,500. The benefit formula is not. The Social Security Administration takes your highest-earning 35 years of work and calculates your average monthly earnings from those years, adjusted upward for subsequent growth in average wages. A progressive formula determines how much of that you’ll be paid monthly: Assuming that you elect to start receiving benefits at age 67, you’ll get 90 percent of the first $1,300, 32 percent of the next $6,500, and 15 percent of the remaining.<br>The benefit side of the equation and the tax side of the equation do not add up to the same number. Thanks to the wage adjustment and long life expectancies, most people receive substantially more money than they paid in. In the aggregate, revenues have lagged behind benefits. “There’s no reason those formulas would be compatible with each other,” Andrew Biggs, a former deputy commissioner of the Social Security Administration, told me. The only reason they ever were was that America used to have enough workers to support its population of retirees.<br>Preventing the program’s insolvency is a math problem that involves tweaking the tax side, the benefit side, or both, until they equal each other. This is not conceptually difficult. Steven Kull, a political psychologist at the University of Maryland, runs a poll every so often in which he shows participants the possible reforms, telling them how much each change closes the funding gap. “The biggest theme is that people solve the problem,” Kull told me, with “majorities taking steps that eliminate most or...