Pseudo-clever wonkery is not going to solve Social Security's unfunded-liabilities problem

 This is a subject LITD focuses on with some frequency. That's because unless what's really going on is fixed sooner rather than later, a whole lot of folks are going to be unpleasantly surprised a few short years from now.

An article appearing today in The Motley Fool explains it with requisite starkness:

Every year since the first retired worker payment was made in 1940, the Social Security Board of Trustees has released a report that examines the current financial status, as well as short-term (10-year) and long-term (75-year) outlook, of the program. Since 1985, the Trustees have cautioned that incoming revenue wouldn't be sufficient to cover outlays (i.e., benefits and administrative expenses) over the 75 years following the release of a report.

As of the 2023 report, Social Security's long-term funding obligation shortfall reached $22.4 trillion, which is $2 trillion more than the long-term shortfall forecast in the 2022 Trustees Report. What decades of Trustees Reports have shown is that the longer Congress waits to act, the larger the Social Security's funding black hole will grow.

The Trustees Report also estimates that if lawmakers fail to address the program's shortcomings, its more than $2.8 trillion in asset reserves -- excess cash built up since inception that's invested, by law, in special-issue bonds -- could be depleted in as little as 10 years for the Old-Age and Survivors Insurance Trust (OASI). If that were to happen, sweeping cuts of up to 23% may be needed for retired workers and survivors to sustain payouts without the need for any further cuts until 2097.

The reason Social Security is such a financial mess has to do with a long list of demographic changes, some of which you may be familiar with. While I've previously discussed these demographic shifts in far greater detail, the key shifts include a 57% decline in legal immigration into the U.S. over the past 25 years, a record-low for U.S. birth rates, rising income inequality, increased longevity, and baby boomers steadily retiring from the labor force.

As part of the agenda Joe Biden ran for president ran for president on in the last election cycle, he put forth a four-point plan for shoring the program up. 

I'll let you peruse the deets beyond the acronyms and esoteric terminology at the article itself, but the points are: 

• reinstate the payroll tax on high earners
• ditch the CPI-W in favor of the CPI-E
• bolster the special minimum benefit
• lift payout for aged beneficiaries

But here's the thing: this package of clever ideas doesn't appreciably move the needle:

Like most proposals, it all sounds great on paper. Social Security would bring in additional revenue, and that revenue would help fuel higher annual COLAs for all 66 million-plus beneficiaries, an increase in the special minimum benefit for lifetime low earners, and higher payouts for retirees as they age. But there's a grim reality to Biden's proposal that needs to be addressed.

While doing something about Social Security's long-term funding shortfall is better than doing nothing, an analysis of Biden's proposal by Urban Institute shows that his four-point plan does very little to extend the solvency of the program's asset reserves. Remember, once the asset reserves are depleted, sweeping benefit cuts are needed to sustain payouts.

According to Urban Institute, Biden's four-point plan would "extend the life of the trust funds by about five years." 

If Biden were to simply propose an increase on taxation to high earners and made no other changes to the program, the solvency issues of the trust funds would have been kicked much further down the road. In fact, an analysis from the Social Security Administration's Office of the Chief Actuary (OCACT) estimates that exposing all earned income to the payroll tax would extend the solvency of the trust funds by "about 35 years."  Biden's additional proposals to beef up COLA payouts, lift the special minimum benefit, and increase the PIA for aged beneficiaries, negates the bulk of the revenue boost from reinstating the payroll tax on the rich.

I know this is going to sound terribly simplistic, but the core of the problem is the contrast in the visions of James Madison and Frances Perkins regarding the proper scope and function of government. 

When you take the macro approach to addressing the big two givens of the human condition - sickness and aging - you're forever frantically trying to come up with ways to fit individual human beings' destinies into a one-size-fits-all model.

In the process, those individual human beings' sense of personal agency begins to erode. At the first sight of any kind of threat to the plan that they've entrusted government to carry out, they adopt a somebody-has-to-do-something-about-this mentality.

That, and not some kind of balance sheet tinkering, is the crux of the matter.