The 'extreme' Social Security move that actually makes sense

The Social Security war is on, as it is during every presidential election. The format is always the same: Democrats say Republicans want to wreck the popular retirement plan for seniors, while Republicans say Democrats want to keep the program going through unsustainable tax increases that will kneecap the entire US economy.

It’s mostly gobbledygook, on both sides. But there’s an important grain of truth in the latest Republican plan to shore up Social Security, which President Biden calls “extreme.” It’s not extreme at all. It’s actually sensible — and inevitable.

The Republican Study Committee (RSC), which represents most Republicans in the House of Representatives, recently published its blueprint for federal spending in 2025. One measure would be “modest adjustments to the retirement age” determining eligibility for Social Security “to account for increases in life expectancy.”

Sound crazy? It shouldn’t, because it has happened before. In 1983, Congress passed legislation gradually raising the retirement age to qualify for full Social Security benefits from 65 to 67, over a span of 30 years. During the same period that the Social Security retirement age rose by two years, US life expectancy rose by more than four.

Biden, however, called the GOP proposal an “extreme budget” that would cut Social Security and healthcare benefits for millions. “I will stop them,” he declared. Other Democrats are piling on. Biden’s close ally, Senate Majority Leader Charles Schumer, lambasted the RSC targets as “cruel” and said they “read like a wish list for Donald Trump and the GOP hard right.” Instead of any changes to benefits or eligibility, Biden and his fellow Democrats want to raise taxes on businesses and the wealthy to keep Social Security fully funded.

WASHINGTON - MARCH 21: Rep. Kevin Hern, R-Okla., speaks during the Republican Study Committee news conference to unveil their FY2025 budget proposal in the U.S. Capitol on Thursday, March 21, 2024. (Bill Clark/CQ-Roll Call, Inc via Getty Images)

Rep. Kevin Hern (R-Okla.) speaks during the Republican Study Committee news conference to unveil their FY2025 budget proposal in the US Capitol on Thursday, March 21, 2024. (Bill Clark via Getty Images)

This, in a microcosm, is why Washington never solves solvable problems until it’s nearly too late. Each side vilifies the other and the mudslinging makes it impossible for ordinary voters to know what’s logical and pragmatic. Incendiary politicians appeal to fear rather than common sense, and a lot of the time it works.

Back to Social Security. Within the next 10 years, the program is likely to run short of the money needed to pay all benefits in full. That’s because it will exhaust the Social Security trust funds, which are basically banked money, leaving only incoming payroll taxes to cover benefits. At the same time, enrollment in the program is swelling, and a declining birth rate is leaving fewer working people to pay for retiree benefits. Without any changes, the program will only be able to pay about 75% of obligated benefits by 2033, according to the latest estimates.

Medicare, the health program for seniors, is in a similar position, for similar reasons. That could actually run short of money a couple of years sooner than Social Security, with 2031 being the latest estimate of D-Year.

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There are three ways to address these imminent funding shortfalls: Raise the taxes that pay for Social Security and Medicare, reduce benefits, or redirect money from general tax revenues to retiree programs. The last option would cause other problems, such as leaving far less money for all the other things the government pays for and pushing up the national debt when it’s already uncomfortably large.

That leaves tax hikes and benefit cuts. Whenever Congress gets around to it, bolstering Social Security and Medicare will almost certainly require both. There are many proposals for how to do this. The compromise position is likely to involve gradually increasing the retirement age again, as Republicans want to do, while also raising the payroll taxes for Social Security and Medicare, as Biden wants to do. The bar for eligibility could go higher, to exclude wealthier Americans who don’t need the money. Tweaking other benefits could help close other budgetary gaps.

Political reality will likely prevent any changes that drastically harm voters. Any tax hikes will start with the wealthy first, such as lifting the ceiling on the Social Security payroll tax, which currently applies only to the first $168,600 in income. In fact, one “progressive” change would be lifting the income ceiling, so the payroll tax applies to all income, while exempting workers below a certain threshold from paying any payroll tax at all.

Any change in the eligibility age will occur gradually, as it did before. Any outright reductions in benefits would likely apply to future generations, not to people currently enrolled in the programs. That’s a time-tested way to ensure nobody loses anything they already have, which tends to upset voters, and especially seniors who vote in the highest numbers. It’s less of a problem if it affects future beneficiaries who may not even be aware of the cutbacks.

Why don’t politicians just come out and say, “This is what it’s going to take to solve our problems”? Because compromise solutions usually involve everybody giving up something, and most politicians are afraid to tell voters the truth. To some extent, that’s rational. Democratic voters don’t want to hear about benefit cuts, and Republican voters don’t want to hear about tax increases. So their elected representatives tell them what they do want to hear.

When crunch time comes, and it’s no longer possible to delay the benefit cuts and tax hikes it will take to fix the nation’s retirement programs, politicians of both parties will tacitly admit the simple fixes they peddled for years were never going to be enough. By that time, however, they will have won another election, or two, or three, and they’ll be telling themselves that fibbing to voters actually works.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.

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