Social Security is in dire straits. Payroll tax increases and benefit cuts are on the horizon.
According to the latest annual report by the Social Security Board of Trustees (“The 2017 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds”), Social Security’s combined trust funds face depletion in 2034, which means that 23 percent of benefits would lack financing.
That results from a number of divergent factors.
First, according to the Social Security Administration (SSA), in the first quarter of 2018, the number of Social Security beneficiaries topped 62 million for the first time. At the end of 2017, there were 61,903,360 Social Security beneficiaries. At the end of March 2018, that number had increased by 330,318 to 62,233,678 Social Security beneficiaries. That includes 45,876,131 retired workers and their dependents, 5,990,290 survivors of deceased workers, and 10,367,257 disabled workers and their dependents. That is an increase of more than 3,670 per day. There are now more people in the United States receiving Social Security benefits than the population of Italy — the world’s 23rd-most-populous country.
Second, according to the Social Security Board of Trustees annual report, in addition to the current financial imbalances in the Social Security program, Social Security is projected to grow significantly faster than the overall economy.
Third, according to the Bureau of Labor Statistics (BLS), in the last month of the first quarter,
There were 127,434,000 full-time workers in the United States. That means there were approximately 2.05 full-time workers in this country for every person receiving Social Security benefits. Total employment in the United States in March — including those only working part-time — was 155,178,000. That amounted to 2.49 people with some type of job per person collecting Social Security benefits.
Fourth, the U.S. birthrate is at a historic low. According to data released by the Centers for Disease Control and Prevention (CDC),
The number of births fell 1 percent from a year earlier, bringing the general fertility rate to 62.0 births per 1,000 women ages 15 to 44. The trend is being driven by a decline in birthrates for teens and 20-somethings. The birthrate for women in their 30s and 40s increased — but not enough to make up for the lower numbers in their younger peers.
Fifth, according to the BLS, last month there were a record 95,745,000 Americans counted as “not in the labor force.” That means that they are not employed and are not seeking a job. The BLS says that this category “includes retired persons, students, those taking care of children or other family members, and others who are neither working nor seeking work.” In April, “only 62.8 percent of the non-institutionalized, civilian population over the age of 16 was either working or actively looking for work.” This is the case even though “job openings in the U.S. hit a record high in March with 6.6 million jobs advertised,” according to a U.S. Department of Labor report. Job openings “increased by 7.8 percent, or by 472,000 openings, in March compared to the previous month.” The Congressional Budget Office (CBO) has projected that due to the continued retirement of the baby-boom generation, “The labor force participation rate will continue to decline over the next 30 years from the current 62.8 percent to 61.0 percent in 2027 and to 59.2 percent in 2047.” The CBO notes that a lower labor-force participation rate is associated with “lower gross domestic product and lower tax revenues” and “larger federal outlays, because people who are not in the labor force are more likely to enroll in federal benefit programs, including Social Security.”
So, how does all of that relate to the state of Social Security?
The Social Security program, which includes Old Age and Survivors Insurance (OASI) and Disability Insurance (DI), is funded by a 12.4 percent (10.03% OASI and 2.37% DI) payroll tax (split equally between employers and employees) on the first $128,400 of an employee’s income. Self-employed individuals pay the full 12.4 percent.
The convergence of more Social Security beneficiaries, rapid growth in the Social Security program, fewer workers for each person receiving Social Security benefits, a low birthrate, and a low labor-force participation rate mean that less money in Social Security taxes will be collected. That means that the Social Security taxes the government collects will not be enough to cover the Social Security benefits it pays out.
Since 2010, the cost of Social Security has exceeded its income from payroll taxes and taxes on Social Security benefits. These annual deficits are made up by interest income and by drawing on the Social Security trust funds, both of which are government accounting fictions. The reality is that the Social Security deficit is made up from the federal government’s general fund.
There’s just one problem with this: the federal government is broke. Federal budgets are now more than $4 trillion a year. According to the CBO, the budget deficit “will surpass $1 trillion by 2020, two years sooner than previously estimated, as tax cuts and spending increases signed by President Donald Trump do little to boost long-term economic growth.” And the national debt is now more than $21 trillion.
Numerous proposals to solve the Social Security crisis and “save” Social Security have been touted by Democrats and Republicans alike: raising the retirement age, raising the Social Security tax rate, reducing or eliminating COLAs, increasing or eliminating the payroll tax cap, reducing benefits, privatizing, investing Social Security taxes in the stock market, means-testing recipients.
All of these proposals have one thing in common: fine-tuning the welfare state.
And as economics professor Walter Williams recently explained,
Tragically, two-thirds to three-quarters of the federal budget can be described as Congress taking the rightful earnings of one American to give to another American — using one American to serve another. Such acts include farm subsidies, business bailouts, Social Security, Medicare, Medicaid, food stamps, welfare, and many other programs.
The largest of these income-transfer programs is Social Security.
And to make matters worse, before the earnings of one American are given to another American, they must pass through government agencies, boards, bureaus, departments, centers, offices, commissions, administrations, authorities, and the hands of government bureaucrats. That comes at quite a cost.
Consider just the SSA. According to the September 2017 Monthly Treasury Statement of Receipts and Outlays of the United States Government (MTS), in fiscal year 2017, the SSA spent $3.678 billion in administrative expenses for the Old-Age and Survivors Insurance program and $2.692 billion in administrative expenses for the Disability Insurance program.
What, then, should be done to prevent Social Security from going over a fiscal cliff?
From a libertarian perspective, because Social Security is an intergenerational wealth-redistribution scheme, the program should be ended, its taxes eliminated, its offices closed, its bureaucrats laid off, and its de facto national ID cards voided.
Although Social Security is also a welfare program that fosters dependency on the government, crowds out real charity, shifts responsibility from the individual to society, shifts responsibility from families to the state, and contributes to class warfare, those things are not first on the list of why Social Security should be ended.
Most important, it is neither constitutional nor the proper role of government to have a retirement, disability, insurance, or investment program; provide a safety net; help those who cannot help themselves; keep widows, orphans, the elderly, the sick, and the disabled out of poverty; or take money from those who work and give it to those who don’t.
Social Security doesn’t need to be “saved”; as the cornerstone of the welfare state, it needs to be abolished if the United States is to be transformed from a welfare state to a free society.