By Andrew G. Biggs
On July 15 the Congressional Budget Office rolled out updated projections that show a precipitous decline in Social Security's solvency. The program's 75-year deficit has nearly quadrupled since 2008, and the trust fund's exhaustion date has moved forward by nearly 20 years. Remarkably, the response by progressives is to expand Social Security's benefits while leaving its multi-trillion-dollar unfunded obligations largely unaddressed.
In 2008 CBO forecast that Social Security faced a 75-year funding shortfall of 1.06% of payroll, which implied that a mere 1.06 percentage point increase in the payroll tax—to 13.46% from the current 12.4%—would keep the system solvent for 75 years. This seemingly minor shortfall caused many on the left—who had fought tooth-and-nail against President Bush's 2005 efforts to fix Social Security—to mock the very need for reform.
The program's deficits were small and distant, the argument then went, the trust fund was projected to remain solvent until 2049, and CBO said its estimates were uncertain, which progressives took to mean that insolvency might never happen at all.
But something has happened since 2008 that even budget hawks have barely remarked on: Social Security's long-term outlook has darkened considerably. Today, CBO projects a 75-year deficit not of 1% of payroll but of 4%. And in place of its earlier prediction that the trust fund would remain solvent until midcentury, CBO today projects that it will run dry by 2030.
In dollar terms, the program would need an additional $15 trillion—in the bank today, earning interest—to pay full benefits over 75 years. For those in denial about the trust fund's insolvency: CBO projects a 90% chance that Social Security's trust fund will be exhausted by 2037.
Many factors lie behind Social Security's declining fiscal health. They include a slow economy, rising disability rolls, updated assumptions regarding rising life expectancies, and the simple passage of time. But the fact remains that CBO's best guess is that the Social Security shortfall is roughly four times larger today than it was just six years ago.
The same six-year period since 2008 coincides with President Obama's time in office. Yet apart from the administration's 2013 proposal to reduce cost of living adjustments—withdrawn under pressure from fellow Democrats—the White House has proposed nothing to put Social Security's finances back on track.
It's hard to blame the president alone for backtracking. The consensus among Democrats has gone beyond opposition to benefit cuts. Now they stand almost united in favor of expanding Social Security. Massachusetts Sen. Elizabeth Warren has spoken in favor of increasing benefits, and multiple pieces of legislation have been introduced in the House and Senate to expand the system.
The most responsible bill, introduced on Aug. 14, is from Rep. John Larson (D., Conn.), who at least attempts to balance the system's tax revenues and benefit outlays. But he makes no attempt to hold down costs, even for the highest-income beneficiaries who could and should save more on their own. Instead, his plan implements across-the board increases in the benefits received by retirees, then boosts benefits further by raising annual cost of living adjustments.
Further down the fiscal responsibility food chain are plans from Iowa Sen. Tom Harkin and a joint proposal from Sens. Mark Begich (D., Alaska) and Patty Murray (D., Wash.). The Harkin proposal eliminates the current $117,000 maximum wage on which payroll taxes are applied. This would raise the effective top marginal tax rate on earned income by 12 percentage points. The Begich-Murray plan adds a 4% surtax on all earnings above $400,000.
These were the kind of tax hikes that progressives once counted on to keep Social Security solvent. But in these proposed plans, most of the extra revenues would be spent on increasing benefits. Sen. Harkin's plan extends Social Security's solvency by only 16 years, while the Begich-Murray proposal cuts Social Security's long-term deficit by a meager 3%. How progressives plan to address Social Security's now-$15 trillion shortfall after effectively tapping out high earners for additional taxes is a mystery.
Some current voters may not care. Sen. Brian Schatz, the winner of last week's delayed Democratic senatorial primary in Hawaii, is believed to have won the close race by supporting expanding Social Security benefits.
So, like the orchestra on the Titanic, progressives keep playing the same song even as the Social Security ship goes under. The difference is that the musicians on the Titanic were heroes.