Politicians have been pussyfooting around the impending fiscal crisis looming in the very near future of Social Security for decades. After George W. Bush’s failed bid to privatize the retirement insurance program and save it from itself, Republicans gradually stopped paying lip service to fixing its Ponzi-like structure, instead broadening their spending concerns to the deficit as a whole.
Then Donald Trump won the presidency after promising not to touch a penny of entitlement spending. Now we’re careening toward crisis.
Social Security will become insolvent by 2035, and Republicans don’t seem to care.
But Democrats, in contrast, want to turn the situation from dreadful to disaster. They propose not only to expand the program, but to turn it from a retirement insurance program to straight up-socialism. Elizabeth Warren has a plan for that, and you’d best believe that her solution to Social Security insolvency is to turn it into a mass wealth transfer.
The current calculus driving Social Security’s acceleration toward insolvency is simple: Its outlays exceed its payroll tax revenues. Social Security has always been structured like a Ponzi scheme, a generational wealth transfer that eventually pays back those paying payroll taxes into the system with retirement benefits many years later. The payout per recipient varies, roughly according to average 35-year lifetime earnings, meaning that in theory, Social Security is somewhat proportionally scaled to ensure that those who pay more into the system receive slightly more in return during retirement. It’s always been a form of retirement insurance, not a retirement investment, and certainly not a means to reduce income inequality in any meaningful way.
So if politicians refuse to issue a buyout to millennials and slowly phase out the program, there are three general ways to ameliorate, not fix, the solvency issue: increase revenue with new or higher payroll taxes, delay the retirement age, or reduce retirement payments. Some plans, such as a sustainable one from the nonpartisan Committee for a Responsible Federal Budget, blend a number of austerity methods so the impact on taxpayers is mild.
Elizabeth Warren blows those out of the water.
Her plan would increase benefits by $200 per month, grant a credit toward “caregivers” who could potentially have not contributed a single cent into the system and thus blow up the proportionality principle of the program, and finance it all with a new 14.8% payroll tax on workers earning more than $250,000 and a 14.8% tax on investment income for the top 2% of earners.
Two things: One, Warren’s solution to a program that’s bleeding money is to increase spending and claim that simply taxing the rich will make it sustainably solvent. And more importantly, she assumes that she can punish investment without shrinking her tax base. Wrong, and wrong.
Social Security is not a welfare program, or at least it was never intended to be. There’s a reason why senior citizens balk at the notion of ending the program, and why the only way to phase it out would require Millennials to buy themselves out: Current Social Security beneficiaries spent a lifetime paying into the system. The government literally owes them their money back.
Warren’s program would destroy that calculus, turning Social Security into just another one of her ways to punish America’s wealth and job creators. Par for the course, I guess.
