Saving Social Security

For decades, the right has been trying to undermine Social Security via various privatization schemes, claiming that the money will not be there when you retire. Republicans have tried to make these claims a self-fulfilling prophecy by refusing to shore up Social Security’s finances in the face of economic and demographic shifts.

Now, Social Security is projected to run out of the funds that it needs to pay full benefits by 2032 if Congress doesn’t act. That’s just eight years away. It’s up to progressives to turn this threat around on the right and improve America’s most cherished (and socialistic) support system while they’re at it.

Specifically, according to the most recent Social Security trustees report, the money remaining in the trust funds plus the anticipated income from payroll taxes will be sufficient to pay only 78 percent of committed benefits come 2032. In other words, if there are no changes, recipients face a 22 percent cut in just six years.

Why does Social Security face a shortfall? The biggest single reason is stagnant wages.

Social Security is financed by payroll taxes. If wages had increased with economic growth at the same pace they did before the 1980s, the shortfall would be far smaller. But of course, nearly all of the economy’s net gains went to the rich, and their Social Security taxes are capped.

The current cap is $184,500, which is adjusted annually for inflation. That means the vast majority of working people pay Social Security on all of their income, while millionaires are taxed on only a trivial share. And since most of the income from the very wealthy comes from capital, that income is exempt from Social Security taxes entirely.

A secondary reason for the shortfall is that people are living longer, and they collect benefits until the day they die—which is as it should be. Two other reasons are declining birth rates and declining immigration rates: Both translate into a smaller workforce and reduced payroll taxes.

SO WHAT SHOULD BE done now?

Cutting benefits should be off the table. Benefits are too meager as it is. More than 50 percent of people over age 65 rely on Social Security for more than half of their income, and one-quarter depend on Social Security for at least 90 percent of their income. With the collapse of traditional pension plans in favor of entirely inadequate 401(k) plans, Social Security carries more weight than ever.

What about trimming benefits for the affluent? You often hear the argument that a millionaire doesn’t need a Social Security check. But a means test at the top would produce only trivial savings, and it would break the universality of the system, which has been key to its broad political support.

If we want to ask well-off Americans to pay more of the costs, a far better way is to restore income and capital gains taxes on the rich, which were reduced in 2017 by President Trump’s tax cut, and then direct some of the revenue to shore up the Social Security trust funds. In fact, supplementing the payroll taxes that finance Social Security with support from general revenue was part of the original design in 1935.

The reason was that the first generation of Social Security could accumulate ample reserves, because at the system’s outset, people were retiring only gradually while all workers were paying in. But the system’s architects realized that as the ratio of retirees to workers kept increasing, eventually general revenue should be part of the financing package so that payroll taxes would not have to be astronomical, especially since payroll taxes are regressive while income taxes are progressive.

Sen. Elizabeth Warren of Massachusetts, a leading progressive Democrat, recently published an op-ed piece in The New York Times with Republican Sen. Bernie Moreno of Ohio, calling for an elimination of the income cap. That would close about 67 percent of the projected shortfall, and allow the system to go on paying full benefits through 2059, according to the Social Security trustees.

Even better would be to extend Social Security taxes to income from capital. Total income from all forms of capital in 2025 was about $6 trillion, compared to $12.2 trillion from wages and salaries. Subjecting capital income to Social Security taxes would close the rest of the gap.

But raising or eliminating the cap presents a difficult politics. To a factory worker or a nurse, someone who earns, say, $350,000 a year as a doctor or lawyer or senior researcher may seem rich. But that person tends to view himself or herself as professional-class.

If we were to get rid of the income cap, someone making $350,000 a year would experience a tax increase of over $10,000 a year. And these people tend to vote. It’s hard to imagine a newly elected Democrat in a swing district voting for legislation that a Republican opponent could brand as a big tax hike on the upper middle class. Paradoxically, extending Social Security taxes to income from capital, most of which hits the mega-rich, may offer a better politics than lifting the cap on income.

Since Trump would veto any remotely progressive reform to strengthen Social Security, this debate is really about planning for 2028, both in terms of messaging and in terms of laying the groundwork for a plan that can actually be enacted, especially if Democrats win back the White House. By 2029, when a new president takes office, Social Security will be only three years away from a 22 percent benefit cut.

In 1981, the last time Social Security faced a serious shortfall, Congress created a bipartisan Commission on Social Security Reform. The commission came back with a compromise plan that increased taxes and cut benefits by raising the retirement age, supposedly keeping the system solvent for another 75 years. The planners did not anticipate the stagnant wages and reduced payroll tax receipts of the following 45 years. So the 75 years of predicted solvency dwindled to less than 50.

Another commission might be a good idea to help Congress consider options, but this one should not consider any benefit cuts. If anything, benefits at the bottom need to be increased.

The debate about how to shore up Social Security for future generations is a first cousin to the broader debate about how to tax extreme concentrated wealth. In this case, the wealth of people who have more money than they know what to do with (and who use it in socially toxic ways) needs to be taxed so that ordinary Americans can have a secure retirement.

Social Security is our most redistributive program. By design, it pays the lowest-income workers a far higher return on their payroll taxes than high-income workers once they retire. For those intimidated by the “socialist” label, America’s most popular program has always been a form of socialism, just as it should be.