Lately there's been a frenzy of political press about looming and unsustainable Social Security deficits. What's it all about?
Let's take a closer look, because the debate provides useful insights about Social Security's future.
Best I can tell, the topic came up in the context of the imminent need to increase the debt limit sometime this summer. Certain factions of the Republican party expressed their intent to oppose raising the debt ceiling, unless significant cuts in future spending are made to reduce future deficits.
What better way to address this problem than to take a budgetary ax to the twin entitlement programs of Social Security and Medicare? These two giants of the federal budget are facing rapidly growing operating deficits in coming years, due to the soaring number of retirees.
Take a whack out of these out-of-control monsters and the problem's solved! Right?
Well, over 60 million people receive Social Security and Medicare benefits. Overwhelmingly, they're seniors… and they vote.
The Political Back-and-Forth
Not surprisingly, Democrats were quick to denounce any plans for cuts.
Surprising perhaps to some, former president Donald Trump promptly announced that Republicans should oppose any cuts to the twin entitlements. (This has consistently been Trump's position since he first announced his bid for president in 2015.)
Soon thereafter, Senate Leader Mitch McConnell (Republican) added his opinion that proposing cuts to Social Security or Medicare should be off the table.
President Biden further inflamed the debate by continuing to accuse Republicans of wanting to cut these programs in his recent State of the Union address—a declaration that prompted calls of "Liar" from select Republicans during the speech.
The next day, the President's office addressed his claims, pointing to recent statements by some Republicans, most notably Senator Rick Scott of Florida, who reiterated his call to trim benefits and require that Congress reauthorize Social Security and Medicare every five years.
Interestingly, Senator Scott quickly clarified that his proposals should not be part of any debt ceiling negotiation.
And so it's gone for the past several weeks.
What This Means for Social Security
No one knows how the debate will ultimately turn out, but I can tell you that when it gets underway, the Social Security (and Medicare) benefit cuts won't even be on the table.
Those Republicans who thought benefit cuts were a good idea quickly realized their proposal was a non-starter, even within their own party.
So what can we learn from this episode?
Social Security recently turned a corner, and is now paying out more in benefits than it's collecting in revenues.
Previously, the opposite was true, and the surplus was put into a trust account. Now that the program is in deficit—a deficit that grows yearly with the growth of retirees—it's drawing down against that trust account, and it will run out of reserves in the early 2030s… less than 10 years from now.
If nothing else is done before then, Social Security would have to cut benefits across the board—around 20% thereafter. But given the brief but fierce debate over the past few weeks, that's not likely to happen.
Congress could vote to raise Social Security taxes. Or some combination of cuts and tax increases could be implemented to fix the program.
In fact, this is exactly what was done 40 years ago—the last time the program was facing a shortfall.
Congress passed a bipartisan compromise, signed into law by President Reagan, that fixed the program for what will be 50 years by the early 2030s.
By the way, that fix had no impact on retirees in the Reagan era; almost all the impact was spread around workers who were still decades or more from retirement—workers who are retiring now.
And you can rest assured Congress will do the same again, because the program is even more popular and the fix is relatively easy.
So plan for your Social Security benefits to be there for you in full throughout your retirement.
You can count on it!
Editor's Note: This message is NOT approved, endorsed, or authorized by the Social Security Administration. All information regarding Social Security discussed or mentioned here is available for free from the Social Security Administration.