What do we do with Social Security?

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I have written often about the perils of keeping the Social Security (SS) system metrics the same as they are now, and a recent report by the trustees of the system merely confirms those concerns.

The trustees’ report indicates that, if nothing is changed regarding the system’s parameters, the SS trust fund will be exhausted by 2032 (plus or minus a couple years) and either the federal government will have to subsidize benefits to maintain them or see benefits cut by more than 20 percent. The only way the federal government can subsidize the system is by raising taxes on everyone, a very politically unpopular option although cutting benefits isn’t exactly a “vote-getter” either. Every time a new report is published with recommendations on how to change the system to avoid these potential disasters, Congress runs for cover since tinkering with Social Security is seen as a political time bomb.

So, do we just wait until 2032 and face the music then, or do we summon the courage to change things now? Well, there may be a third choice and its unlikely author is none other than Donald Trump. President Trump has stated repeatedly that he will not support changes to the Social Security system, so pushing that agenda isn’t going to get much traction as long as he is in office. He has suggested another way, however, to avoid the looming crisis and doing so will benefit everyone rather than penalizing them. It’s called growing the economy and it actually could work if we can sustain it.

Here’s the idea: The Social Security system derives revenue from three sources: payroll taxes paid by employers and employees, income taxes on benefits paid to SS recipients and interest earned on the SS trust funds. If the economy’s annual growth rate moves from 2 percent to 4 percent sustainably, more people will be working, thus increasing SS payroll tax collections. And, wages will likely rise, also increasing tax collections. A growing economy will, in all probability, result in higher interest rates (to keep inflation in check), which in turn increase the income earned on SS trust fund investments. And, if more people choose to work longer due to a stronger economy, payroll tax collections will increase, and benefit payouts will decrease. 

Everyone benefits, in one way or another, from a stronger economy, so this strategy has little downside in my humble opinion. And, if we cannot summon the political courage to make changes to the system, then bailing it out via economic growth isn’t a bad second choice. I realize that many people don’t care for President Trump (obviously, many DO as well), but it’s hard to argue with his logic on this issue, particularly if it helps avoid a crisis no one wants to address. We can disagree on many political fronts, but I think most Americans hope for a strong, thriving U.S. economy.