Americans are about to get a crash course in the financial disaster that is Social Security. It’s not going to be an easy A.
Part of the course will be reading fiction from Social Security’s long-time defenders like AARP, and nutty proposed remedies from well-meaning amateurs. Elizabeth Warren (D-MA) and Bernie Moreno (R-OH) recently offered an excellent example of the latter, which we’ll come back to shortly.
The recent Social Security Trustees’ Report triggered the current mini-flurry of interest. The report indicates Social Security’s Trust Fund will be depleted by 2032, at which time benefits will be cut 22%.
One might notice the paucity of news coverage of such an impending calamity. Part of the reason is that Donald Trump can’t be blamed, which takes all the fun out it for much of the media.
But mostly the silence is because it’s not news. The Trustees’ have issued their warnings for decades.
One irony from the depletion timeline is that senators elected in 2026 will soon sense they won the booby prize as they’ll have to deal with this problem, as will whoever wins the White House in 2028. Some congressmen will probably retire first. Joke’s on you, folks.
How did we get into this mess? It’s not complicated. The programmatic explanation can take many somewhat technical forms, most of them correct. One can cite worker replacement rates, bend points, indexing formulas and eligibility ages.
But let’s put it in plain English. Social Security will run short on funds because past and current retirees promised themselves and received benefits for which they didn’t pay. Full stop. All the technical stuff just elaborates on that basic fact.
The second part of the explanation is political, and it starts with AARP, which has knowingly mischaracterized Social Security’s condition for decades. AARP is to Social Security what Anthony Fauci is to COVID and the Wuhan Lab.
But AARP did more than dissemble about Social Security’s finances. AARP launched withering attacks against any politician who argued the contrary.
And so, over the years almost every national politician remained silent as the problem was always in the future and so could be ignored today.
One exception was President George W. Bush, whose valiant efforts came to naught as he exhausted his second term political capital.
A second was Paul Ryan, who as House Budget Committee Chairman and later as House Speaker developed a comprehensive plan to deal with Social Security and Medicare, eventually convincing House Republicans to support the plan. Senate Republicans ducked, of course. And an AARP-funded group ran TV commercials in Ryan’s district showing him pushing his wheelchair bound grandmother off a cliff. The rest got the message.
Enter Warren and Moreno, who propose a roughly ten-year $3.4 trillion tax hike by eliminating the Social Security payroll tax cap. The combined 12.4% payroll tax is currently imposed on incomes up to $184,500.
Social Security acts as an old-age financial safety net, more-or-less replacing wages. Beyond a certain income level, however, workers and retirees can take care of themselves, hence the cap.
The capped payroll tax means a proportional tax up to the cap and a regressive tax thereafter. This regressivity really burns most leftists. However, the benefit formula is highly progressive, and so considering the tax and benefits together leaves a progressive system.
Eliminating the cap would substantially increase marginal tax rates on upper-income workers, just the ticket if one seeks to imitate European-style economic malaise.
And eliminating the cap would result in a substantial increase in the progressivity of the overall federal tax system, just the dream of every good card-carrying leftist, which explains Warren’s enthusiasm but presumably not Moreno’s.
Those are both sound reasons for opposing the Warren-Moreno approach, but what really makes their proposal so outrageous is that it would raise taxes on upper-income workers to sustain benefits for upper-income retirees, retirees who through their federal representation over decades refused to pay for their own benefits.
Social Security remains a safety net program, so certainly benefits for current lower- and middle-income retirees should be protected. But why tax upper-income workers to sustain benefits for upper-income retirees?
Moreno’s toe dipping into Social Security reform with Warren teaches two important lessons.
The first is that, though nuts, Warren isn’t stupid and she does her homework. Any Republican working with her should understand she will con you out of your socks if you’re not careful. Senator Moreno, you need new socks.
The second lesson is that before putting forth ideas for fixing Social Security, you better do your homework. Congress, the White House and the American people are going to spend the next few years doing a lot of Social Security homework. Senator Moreno has shown what happens when you skip this step.
J.D. Foster is the former chief economist at the Office of Management and Budget and former chief economist and senior vice president at the U.S. Chamber of Commerce. He now resides in relative freedom in the hills of Idaho.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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