What If We Stopped Worrying About The Social Security Trust Fund?

Readers, I’ll start with a reminder:

I believe that Social Security doesn’t need just a little bit of renovation, taking out the old wallpaper and replacing the carpet with hardwood, but needs a whole-house gutting, in which we swap out, for future accruals, the current clunky bendpoint-based formula for a flat anti-poverty benefit paired with a mandatory account-based funded system on second-tranche income.  (Democrats are already proposing, via the “Social Security 2100 Act,” a much-increased minimum benefit, and various states are implementing state-sponsored mandatory auto-enrollment IRA programs, but I am convinced that the only way to implement a reform that will have widespread bipartisan support is by incorporating a funded system, with smoothing and pooling, into the Social Security system in place of the current structure, for middle-income pay-replacement.)

I acknowledge, however, that, to date, I have succeeded in persuading, near as I can tell, 0% of Congress.

That being said, so long as our imagination is limited to new coats of paint, I’m increasingly inclined to believe that we should simply discard the idea of caring about the end point of the existing Trust Fund.

If, on the one hand, life and health expectancy has increased such that it’s reasonable and appropriate to increase the retirement age, then we should do so regardless of what other decisions are made.  (My personal preference would be to legislate a method for adjusting the retirement age on a regular basis at that age at which a fixed percentage of workers, say, 1/4 or 1/3 of the group, would otherwise need to retire for disability/health reasons.)

If, on the other hand, the consensus is that we need some combination of tax hikes and earnings-cap adjustments, and if at the same time, there’s a majority belief that tax revenue needs to be boosted in any case, why do we need to play games with a “Trust Fund”?  Why not simply adjust taxes to the level needed to remedy deficits and fund whatever other spending the majority wants, in ways that are sustainable in the long term but recognize that demographic challenges will grow over time?  For that matter, why, if we want a benefit formula in which the wealthy subsidize the poor, rather than a “pay your own way” contribution, why should we limit taxes to wage income?

And, again, recall that of far greater significance than the Trust Fund is the old-age dependency ratio; back a year ago I referred readers to a Brookings statistics that total federal spending on the elderly is projected to increase from today’s 20.5% of GDP to 29.4% of GDP in 2046 — not 29.4% of government spending but of the total economic output.   How we cope with this aging future matters more than an arbitrary Trust Fund Depletion Date.

Consider the Disability Trust Fund.  In the 2016 Trustee’s report, this fund was projected to be depleted as soon as 2023.  In 2017, that number moved to 2028, in 2018, to 2032, and in the most current report to 2052.  Is Social Security Disability Insurance “fixed,” then?  No, of course not.  The program has widely-acknowledged problems, as many genuinely disabled Americans find themselves obliged to hire lawyers (and pay their contingency fees) in order to navigate the system, and others succeed in collecting benefits despite a genuine ability to work; hence, this stretching out of the fund depletion date is the result not of American’s improved health so much as the improved economy keeping more people in the workforce who would otherwise be deemed unable to work.  Other acknowledged shortcomings of the system include the lack of partial disablement structure to keep Americans in the workforce if they are able to work on a partial basis, and an insufficient return-to-work program.  (See, for instance, “16 Reforms to Improve the Solvency and Integrity of Social Security Disability Insurance,” a report at the Heritage Foundation or “Disability insurance: A crisis ends, but problems persist,” at the Brookings Institute, for recent commentary.)  For that matter, a report in yesterday’s Washington Post about a proposed disability change, in which blue-collar workers who are not proficient in English would no longer qualify for disability on the principle that they can’t transition to a desk job, signals a fundamental flaw in a system of all-or-nothing, which leaves no room for temporary benefits while an individual leans a new occupation, be that skills for a desk job, or English language instruction.

And none of these issues have anything to do with the depletion of the Trust Fund — but have we so conditioned ourselves to think of the depletion date as the target that we can’t think sensibly about more fundamental reform?  Certainly, the drumbeat of “we have to reform Social Security Disability” has diminished quite considerably as that date was moved further and further into the future.

And the same is true of “regular” Social Security, that is, the Old Age and Survivors’ program.  Yes, we must craft a benefit design and funding structure that is sustainable in the long term, and which takes into account anticipated life and health-expectancy improvements and expected changes in the long-term in fertility rates, economic development, and the like.  But to take as our marker the Trust Fund depletion date, or set as our objective replenishing the Fund?  Let’s not.

What do you think?  You’re invited to comment at JaneTheActuary.com!

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