Why Social Security is Falling Apart, Explained in Language You Can Understand


The Social Security debate has its own private lexicon wherein words take on new meanings, which at times even contradict the meaning those words have in the English language. The consequence of the Social Security pseudo-code is a stalemate, because it is virtually impossible to build any consensus in a world where up means down and right means left. 

For example, the standard rebuttal to any call for reform is, "Social Security has funds in a worst-case scenario to pay full benefits for more than 20 years, and minor changes could easily fix the long-term funding problem." While you hear this often, you need a decoder ring to understand what is really being said.

The most abused word in the debate about Social Security is "fixed." Writers use the word "fixed" and "solvent" interchangeably, even though the concepts are 14 trillion dollars apart according to the Social Security Administration. "Fixed" means that we have no problem. "Solvent" means that we have made our problem a problem for our kids. These are not the same thing.

For millennials, "solvent" means that the nation will divert roughly $10 trillion away from deficit control so that in 35 years millennials can be in the exact same situation Boomers are today. As millennials approach retirement, the system would have massive solvency shortfalls. The working generation would be complaining about the cost of the system, doubting that they will collect anything. The nation will be right back where it was in 2013 and 1983 with millennials trying to convince their children that Social Security will provide them a safe retirement provided that they pay more and get less.

This problem comes in part because the word "funds," in a Social Security context, does not mean funds in the traditional sense of the word. Social Security is financed, not funded.  Social Security collects payroll revenue in exchange for the promise of future benefits. This is no different from going to a bank to borrow money in exchange for the promise of future interest and principal payments. Social Security pays every dollar of benefits with borrowed money, where the next generation serves as a new bank.

Yes, the system holds $2.7 trillion in borrowed money in the trust funds. In building that reserve, the system issued more than $25 trillion of promises for which there are no funds in any true sense of the word. 

Words of certainty in the Social Security debate also have no meaning. "Will" means "might," or at best "should." The Trustees of Social Security say that in a good economy Social Security might be able to pay full benefits until 2033. 2033 is not a prediction. It is a likely outcome. The projection is provided as a warning, not as a guarantee. 

Even so, what would the word "guarantee" mean? On Dec. 20, 1977, President Carter said, "This legislation will guarantee that from 1980 to the year 2030, the social security funds will be sound." "Guarantee" meant that six years later the system was completely insolvent, requiring massive tax increases, benefit cuts, and the inclusion of millions of more workers.

Not only is 2033 not a guarantee, it is not even a "worst-case" scenario. The Trustees provide projections based on three different scenarios, ranging from low-cost to high-cost. On page 58 of the Trustees Report, the Trustees provide outcomes based on less favorable economic assumptions where the system pays degraded benefits in 2027. And while these assumptions are called "high-cost," they are far from a worst-case scenario.

Words of magnitude in the Social Security debate have no meaning. The opponents in the debate change the wording of $10 trillion so that it has no meaning. Ten trillion is expressed as a percentage of GPD. It is expressed as a percentage of wages.  For example, Gail Buckner on Fox Business referred to the $10 trillion as "small" increase in the payroll tax rate of 1.3%. Another way to express her ideas is, "Raising Payroll Taxes to Save Social Security will Cost the Average Worker $73,000." Expressing the problem in fewer digits does not make the problem smaller —$10 trillion is still $10 trillion.

In a debate where words have no meaning, it is possible to say that Social Security's financing gap is easy to fix — whatever "easy" means.