John Palmer: Painful steps needed to protect Social Security

A recent New York Times editorial titled “Biden’s Promises on Social Security and Medicare Ignore Financial Reality” is, alas, convincing. The president has said there will be no diminution of Social Security payments, even though the Social Security fund’s current outgo is higher than income. People are living longer and the large age cohort called boomers is beginning to retire. The time has come to make some grim decisions.

Before setting forth the unhappy details in a can-we-find-the-least-bad-alternative scenario, it should be said that President Biden is not the only blameworthy actor: both Democrats and Republicans have been hypocritical. While some Republicans call for Social Security reform, during the Trump administration these voices were not heard. The situation now is so critical that we will have to lower outlays and also increase assets in the fund. Lowering Social Security payments will increase suffering, while shoring up assets will raise taxes (which may also increasing suffering but not as much).

Here are three approaches which, if they all are adopted will help. The first two are much-discussed standards, while the last one is, as far as I know, my own original idea.

First abolish the income cap on Social Security taxes. The cap was put in place to support the idea that Social Security was an insurance program, and insurance premiums are not calculated on ability to pay. Second, raise the age at which one can begin receiving payments. Third, have current Social Security recipients forego cost-of-living increases.

The third idea is to cease — for some years, at least — adjusting payments for inflation. The savings would come slowly, but those receiving payments would have had time to adjust, and many would not even notice that an adjustment had been skipped.

Of course all of my fellow residents at the Woodlands Retirement Community receive Social Security payments. If any of them would protest this last idea, I would point out that they dote on their connection to Marshall University. The sacrifice made by those on Social Security now would help those young folks whom we like to have visit and for whom we cheer in athletic events. The unhappy point — to reiterate — is that, unless something is done, these young folks will not be able to receive the same level of support we now have.

For those who so far are skeptical, here are some quotations from “Megatrends” by the respected economist Nouriel Roubini:

a) “Advanced and emerging economies are burdened with more debt than ever. Policy makers have tapped every resource in monetary and fiscal arsenals.”

b) “Current projections anticipate insolvency — the fund running out of assets in 2033, a date that COVID advanced by one year.”

c) “Instead of going to young workers, an increasing share of the national income must preserve standards of living for retirees. The skewing gets worse every year as payrolls shrink and old-age liabilities bloom. If young workers do not yet resent surrendering their future to bankroll retirees, they eventually will.”

If we retirees allow cost-of-living adjustments to lapse, those against raising taxes will have cover to do away with the cap on taxes.

The scenario sketched out in “c” above saddens me. I for one really, really do not want to be resented.