Broker Check

Note to President Biden and members of Congress

May 01, 2023

Note to President Biden and members of Congress: Stop lying about Social Security

Politicians who promise to “not change Social Security” are promising a 20% cut in benefits.  That is what happens in 2034 (or even sooner if inflation remains high) if no change is made to Social Security.  No one has to vote to cut your benefits.  Benefits will be cut automatically when the Social Security trust fund is depleted.  The fact that trust fund is only an accounting gimmick doesn’t change the math!  So when you hear disingenuous (or clueless) politicians (this includes the current leaders of both political parties) saying “we won’t touch Social Security” – they are actually promising to cut everyone’s benefit by at least 20%. 

I hate commenting on issues that are politically fraught.  But Social Security is a crucial component of most financial plans.  It is hard to make the retirement math work without Social Security.  The future of the program is thus very important to me – and it should be so to you as well. 

The troubled future of Social Security will be increasingly in the news over the coming years.  Hopefully so much so that the politicians will no longer be able to pretend that leaving the system alone is an option.  You can learn more about the Social Security funding issue in this Morningstar article on the topic.

There are only so many tools available to fix it. 

  • Raise payroll taxes. There are numerous ways to do this, none of them will be popular. 
  • Cut benefits. That is probably a non-starter – although some change to benefits for higher income folks may be part of a future solution.
  • Adjust the cost of living adjustment formula.
  • Increased taxation of benefits
  • Raise the retirement age. Again, this won’t be popular, but people are living a long time.  When Social Security was started, life expectancy was much shorter.  No one expected to be on Social Security for more than a decade.  Now, people may spend more years collecting Social Security than they spent in the workforce paying taxes into the system.  Again, this won’t be popular! 

Any ultimate fix probably requires an “all of the above” approach.  In 1983 members of both parties bravely got together to propose fixes that they promised would secure benefits for the next 50 years.  Their projections were incredibly accurate.  It will be almost exactly 50 years later that the trust fund goes bust.  Fixing this now – just like 40 years ago - will take leadership and political courage.  Sadly both of these traits are in short supply these days. 

There is one other possible solution – it’s not a good one, but it is probably the most likely.  Congress can change the law so that Social Security is paid for out of general funds, instead of the dedicated payroll taxes that have paid for benefits since the inception of the program.  Even this takes congressional action (so it still requires “changing” Social Security).  If they go this route, they are essentially saying “we’ll borrow and print the money needed to pay you, and your kids and grandkids can live in a country hobbled by debt and inflation”.  That might work for a while – but could ultimately kill the program.  If Social Security is paid for out of general revenue, it will cease to be a true “entitlement” program.  No one will be able to claim “I paid into the fund my whole career – I deserve these benefits”.   The only attraction of this approach is that it can be implemented at the last minute, and it is the easiest way to claim to have “fixed” Social Security (not that it will actually be fixed). 

All of the solutions are unpalatable – but the longer Congress and the President play chicken, the bigger the tax increases and spending cuts needed to properly fix the program will need to be.  If there is one issue worth writing to your Congressional representative about it is this one.  They need to hear this loud and clear “PLEASE DO change social security” – so it will be around not only for me but also for my kids and grandkids.