Social Security: Don't Believe the Hype
It’s that time again, when the federal government reports on the fiscal state of Social Security (headed toward zero) and also estimates the cost-of-living adjustments (COLAs) for next year. Last year, retirees got a 9% raise, but were told the program would be insolvent by 2033. This year, retirees should receive around a 3% raise, and the program is still on the way to financial oblivion.
One of these two things is important, the other is noise.
Social Security Trust Fund
While it’s true that, at its current run rate, the Social Security Trust Fund will be empty in 2033, that doesn’t mean it will bring in no money. No matter what happens with the fund balance, people still pay taxes and, therefore, the agency will bring in money. The Social Security Administration estimates that if we do nothing, the program will bring in enough cash to pay 80% of benefits.
But does that sound likely? Does it make sense that the U.S. government would allow the elderly to take a 20% benefit cut? For all of its faults, the U.S. is still a republic, which means people who bother to vote have a much better chance of getting their grievances addressed than people who don’t vote. Old people vote. Period.
I can’t think of an issue that will bring together people of different political stripes more quickly and more completely than the idea of cutting Social Security benefits to current recipients. That’s idiotic.
However, that doesn’t mean we simply will stay the course and hope it works out. When President Reagan and his budget director David Stockman last “fixed” Social Security, they bought another 50 years of life for the program. They knew it wasn’t permanent. Their fix involved a long, slow progression that eventually pushed the age of full benefits from 65 to 67. We’ll do the same thing and move the full retirement from age 67 to 69 or 70.
We might increase the amount of income taxed for Social Security, but that’s just a disguised tax hike.
A Possible Change for COLAs from CPI to NAWI
There is one other, more -underhanded thing the government might do. Congress might change the basis for COLAs from the Consumer Price Index to the National Average Wage Index. Over the last several decades, consumer prices have risen faster than wages. Some have argued that Social Security adjustments are supposed to mimic our time at work, which would call for increasing benefits with wage inflation. But there’s a problem. Those adjustments are called cost-of-living- adjustments, not pretend-I’m-working- adjustments. As the name implies and as Congress discussed when COLAs were codified, the goal was for benefits to keep pace with prices. This doesn’t mean Congress won’t change the formula, just that it would be a rotten thing to do. But hey, we’re still talking about Congress. And what do they care? Their pensions aren’t tied to Social Security, anyways.
Written by Rodney Johnson The Rodney Johnson Report
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