the gap between benefits and receipts doesn’t change much after about 2035. This tells you that the Social Security problem is essentially a one-time problem, occurring as a result of the retirement of the boomer generation. If we can enact a series of reforms that moves up the receipts line and moves down the benefits line, then after about 2035 the system can be fairly stable for decades into the future.
I have a different view. Longevity has been going up pretty steadily at a rate of 2.5 years per decade. In recent decades, much of that increase has occurred at the high end (reductions in infant mortality used to be a big factor, but that has reached an asymptote). The age of government dependency (aka the Social Security retirement age) has not been increased as much. If those trends continue, then the ratio of government-dependency years to working years goes up inexorably. A system in which workers pay for retirees faces very troubling arithmetic.
Having said that, Taylor does a nice job of summarizing a CBO report on options for improving Social Security finances. I think he is more charitable than I would be toward the left’s approach, which strikes me as more of a “deny that there is a problem” strategy.
In retirement, the spoils go to those who live longer and compound their wealth at a higher rate. Social security reduced inequality for a long time, but as people live longer and save more, inequality can only increase towards the end of life and then from generation to generation, as assortative mating and compound growth start to really kick in. In a few generations, the Bogleheads will form their own colony of superwealthy on an island somewhere.
Let’s look at the history of the disability insurance (DI) trust fund.
In 1984, in a little reported part of the reforms enacted reacting to the report of the Greenspan Commission on Social Security, they relaxed the tests to allow for more self-reported pains instead of the more VA-like “medically diagnosed specific impairment” method.
That quickly reduced the surplus to nothing, keeping receipts and expenditures nearly equal, but with projections that this definitely make the fund long-term insolvent, but also possibly short-term, because there was so little in the fund, which started to quickly implode after the recession in the early 90’s.
So, in 1993 they tinkered with the tax and, IIRC, removed that portion of the taxable income cap. That created a large surplus which accumulated over $200 Billion in the fund until the system suddenly flipped into enormous and sustained deficit of $30 Billion / year (about 25% of tax receipts) when the GFC began. $30 Billion is no joke – that’s still 150% of NASA’s new, bigger budget
And so now, without some major fix, the fund goes broke in about a year. No one expects benefits to decline or to be slashed. So, either disability taxes must be permanently raised at least 25%-30%, or the money must be taken from elsewhere. For example from the regular Old Age and Survivors Social Security fund, and from what I hear this is the most attractive option to the politicians. That will probably help drive intergovernmental holdings into long-term decline sooner than anticipated.
It was never going broke, and never will. Due to accounting gimmicks, the program looks a little different, but if we run fairly small deficits in the program for a few years, nothing happens. We’ll then demographically balance out again on the other side.
But its easier to scare people, so…
Life expectancy of the wealthy is increasing, that of the working class is not, and a slowdown recently, which suggests increasing the cap would be one of the more suitable moves. A solution will require offering an improvement over doing nothing, but doing nothing has been more attractive than any offered to date, and actually far more attractive. Serious proposals won’t come until we are much closer and if they still don’t, doing nothing will still have been best.
My recollection is that life expectancy figures haven’t increased in the US for three years now, which isn’t good news in some ways, but certainly takes some pressure off SS outflows.
Further downstream … we need to find good cheap and effective treatments (“cures” even) for obesity, Alzheimer’s, schizophrenia, and diabetes. Not that these would help SS in any obvious fashion, but they’d tamp down Medicare costs, and maybe another couple year increase in retirement age would make sense after that.