Will Social Security Go Bankrupt In the 2030s?: Fact-Checking the Third Presidential Debate
October 20, 2016
By Steven Hill
During the third and final presidential debate in Las Vegas, Hillary Clinton and Donald Trump addressed issues ranging from who they would nominate for the Supreme Court to their stances on abortion and women’s health. In the portion of the debate dedicated to the national debt, moderator Chris Wallace stated: “Social Security is going to run out of money in the 2030s, and at that time, recipients are going to take huge cuts on their benefits.”
Trump claimed that in order to avoid disaster, he would cut taxes and repeal Obamacare. By contrast, Clinton reasserted that under her plan, she would put more money in the Social Security Trust Fund by increasing taxes on the wealthy.
But, in the end, the question remained: is it really true that our Social Security fund, as it stands, will be bankrupt by the 2030? In this excerpt from Expand Social Security Now!, author Steven Hill rebuts that notion and tells us what it will really take to keep social security (and Medicare) from going broke.
Social Security is not going broke, not by a long shot. The Social Security Board of Trustees released its annual report to Congress in July 2015, and among all the tables, charts, and graphs in that big fat report, it would be easy to miss the most important take-home message: Social Security is one of the best-funded federal programs in US history. That’s because it has its own dedicated revenue stream, which is composed of the insurance premiums paid by every worker (deducted from our paychecks by what is called “payroll contributions”), which are automatically banked into the Trust Fund. Even the Pentagon and the defense budget do not have their own dedicated revenue stream.
In fact, Social Security has not one dedicated revenue stream, but three. Besides the payroll contributions, Social Security is also funded by income generated from investing all those set-aside wages into US treasuries. That money earns a sizable return on the investment. And Social Security is also funded by revenue that comes from levying income tax on Social Security recipients (yes, your Social Security check and that of other Americans is treated as income and taxed—and it brought in $756 billion to the Trust Fund in 2014). Those three revenue streams combined have banked $2.8 trillion in the Trust Fund and resulted in a $25 billion surplus in 2014.
Bankrupt? That charge does not even pass a good laugh test.
Indeed, because Social Security has its own funding source, and by law is not allowed to spend any money it does not have, it is actually impossible for Social Security to add to annual operating deficits or the national debt. Moreover, the Social Security Board of Trustees is required by law to report to Congress every year about the financial fitness of the program. The annual trustees report projects its revenues and payouts, not just for the next five, ten, or twenty years, but for the next seventy-five years. It’s one of the few programs anyone can identify that has had the wisdom to plan for the future, rather than planning around short-term political calculations and the next election cycle.
Pensions expert Nancy Altman analyzed the trustees’ report in 2015 and concluded, “Over the next 5 years, Social Security has sufficient funds to pay every penny of benefits and every penny of associated administrative costs. That is true for the next 10 years. And also the next 15 years.” However over the next twenty years, as more and more of the huge population bloom known as the baby boomers continues to retire, Social Security is projecting a modest shortfall of just 0.51 percent of gross domestic product (GDP). If nothing is done to plug that gap, sometime in the 2030s the Trust Fund will have enough to cover only 75 percent of benefits. But there are so many budgetary ways to cover that shortfall, it becomes clear that the problem is not the finances of finding the money but the politics of partisanship and paralysis. No other government program can claim that it is fully funded for almost the next quarter century. What government critics ever say that the Defense Department or the Departments of Energy or Education are going bankrupt? Yet those programs don’t have dedicated revenue streams, and certainly no one plans or projects costs for those programs over the next seventy-five years.
No, these sorts of charges are leveled by the Peter G. Petersons of the world for political reasons, not economics or finances. And even in terms of the shortfall that will emerge in a couple of decades, that gap could be covered with a few minor tweaks. For example, simply removing the payroll cap and taxing all income brackets equally would not only be fairer to all Americans, it would also raise all of the money and then some to plug any Social Security funding shortfalls twenty years from now. So we would have lots of time to phase in a fair reform like that. Opinion polls have demonstrated that most Americans think if they pay Social Security tax on their full salary, others should as well. So removing the income cap and making all income levels pay according to the same rules would be a very popular reform, and would safeguard the nearly $3 trillion Trust Fund for decades to come. That’s just one example of the many adjustments we can enact that would make the US retirement system more fair, robust, and stable, and better adapted to the realities of today’s economy.
(In Chapter 5 of Expand Social Security Now!, Steven Hill explores several funding options that not only stabilize Social Security, but will double its monthly payout.)
About the Author
Steven Hill is a Senior Fellow with the New America Foundation and a Holtzbrinck Fellow at the American Academy in Berlin. He is the author of six books, including Raw Deal: How the “Uber Economy” and Runaway Capitalism Are Screwing American Workers, which was selected by The Globalist as one of the Top Ten Books of 2015. His op-ed’s, articles and media interviews have appeared in the New York Times, Washington Post, Wall Street Journal, The Atlantic, Politico, CNN, C-SPAN, BBC, Financial Times,Guardian, Bloomberg News, Fox News,National Public Radio, The Nation,Salon,Slate,Observer, Fast Company, Business Insider, HuffingtonPost, Le Monde, Die Zeit, Al Jazeeraand many others. His other books include Europe’s Promise: Why the European Way Is the Best Hope in an Insecure Age and 10 Steps to Repair American Democracy. He is a co-founder of FairVote/Center for Voting and Democracy. Follow him on Twitter at @StevenHill1776 and visit his website.