Source: United States Senator for Louisiana Bill Cassidy
05.09.23
Biden and Trump’s plan to do nothing means automatic cuts, we need something better.
WASHINGTON – U.S. Senator Bill Cassidy, M.D. (R-LA) penned an op-ed in the National Review highlighting President Biden and Trump’s “Do Nothing” plan, which results in an automatic 24% cut in Social Security benefits in nine years. He also outlined his “Big Idea” to address the majority of the Social Security shortfall, which would stave off those impending benefit cuts.
“Americans view Social Security as a sacred trust. They pay in while they work and receive benefits when they retire. Today, however, if pronouncements that the Social Security Trust Fund is going broke continue to be ignored, that trust may well be broken. Social Security needs reform, and without it, the results for many will be calamitous,” wrote Dr. Cassidy.
“Policymakers have tools at their disposal to reform Social Security and make sure the program remains viable for future generations. Using investments is a good place to start,” continued Dr. Cassidy.
“If Americans want to ensure that Social Security benefits will be available to future generations, they need to move on from Biden, Trump, and their bipartisan Do-Nothing plan,” concluded Dr. Cassidy.
Cassidy is leading a working group with U.S. Senator Angus King (I-ME) and a bipartisan group of colleagues to preserve and protect Social Security. He questioned U.S. Treasury Secretary Janet Yellen on the Biden administration’s lack of a plan to address Social Security at a Senate Finance hearing and delivered a speech on the Senate floor calling on President Biden to honor his pledge to protect Social Security and meet with a bipartisan group of senators currently discussing options to save the program. He also outlined his Social Security plan in a fireside chat with the Bipartisan Policy Committee.
In March, the Trustees of the Social Security and Medicare trust funds moved up the Social Security insolvency deadline a full year.
In February, the Congressional Budget Office updated its estimates saying Social Security is heading toward a financial cliff in 2032. They found Medicare and Social Security spending rapidly outpacing federal tax revenues further hastening the insolvency deadlines.
Read the full op-ed here or below.
Refusing to Reform Social Security Is a Plan — and a Bad One
Biden and Trump’s plan to do nothing means automatic cuts, we need something better.
Americans view Social Security as a sacred trust. They pay in while they work and receive benefits when they retire. Today, however, if pronouncements that the Social Security Trust Fund is going broke continue to be ignored, that trust may well be broken. Social Security needs reform, and without it, the results for many will be calamitous.
One of the reasons that reform is difficult is because if either Democrats or Republicans advance a Social Security reform bill, it is easy for the other party to oppose it for political advantage. It is a truism, therefore, that Social Security reform must be bipartisan. And today somehow, despite our polarized politics, Joe Biden and Donald Trump actually share a Social Security plan. This could be good.
Except their plan is to do nothing. Under their “Do-Nothing” plan, Social Security will be insolvent in nine years. As required by law, solvency must be restored by benefit cuts, in this case, of 24 percent. These dramatic cuts will double poverty among the elderly. Alternatively, Congress could increase the payroll tax as much as 27 percent — which is highly regressive and punishes poorer people — to avoid this outcome.
The fact that the leading candidates of both our political parties endorse this Do-Nothing plan should be cause for concern. Indeed, the lack of leadership inherent to such an approach should disqualify anyone seeking to be president from the nation’s highest office.
But before discussing solutions, we must understand from whence we came.
Society looks very different today than when President Franklin D. Roosevelt signed the Social Security Act in 1935. When the program was fully implemented in 1945, Americans became eligible for benefits at age 65 and the average life expectancy was 62. Today, average life expectancy today is 82.
Likewise, in 1945 there were nearly 42 workers for one beneficiary. But between smaller families and longer life spans, there are now only 2.8 workers per beneficiary. And this trend is likely to continue: U.S. fertility rates are at record lows and 10,000 Boomers become eligible for Social Security every day.
Aside from demographics, financing also affects solvency. A payroll tax split evenly between the employee and the employer pays for Social Security benefits. In 1936 this payroll tax applied to 90 percent of wage income. Over time, the payroll tax applied to a smaller percentage as income grew disproportionately among higher earners. The Ronald Reagan–Tip O’Neil Social Security reforms of 1986 attempted to address this, and once more applied the payroll tax to 90 percent of total wage income. However, the trend of increased income growth for higher earners continued and the percent of the wage base covered by the payroll tax today has fallen to 83 percent.
Inflation also drives insolvency. Payroll tax proceeds are deposited in the Social Security Trust Fund. If collections exceed payments, the excess is invested in Treasurys. This interest income supplements payroll tax income. In today’s high-inflation environment, these are terrible investments often yielding less than 3 percent.
All of this has created a 75-year, $210 trillion (nominal) unfunded accrued liability. Since current law doesn’t allow borrowing to pay benefits, proposals to restore solvency typically include some mix of raising payroll-tax revenue and restructuring benefits. If borrowing were allowed with no reform, the 75-year unfunded accrued liability would swell to $560 trillion (nominal).
This amount of borrowing would give the U.S. a debt-to-GDP ratio of 242 percent, similar to that of Greece and Venezuela. Our debt would increase even faster as we continue to borrow to pay for other entitlements and discretionary spending.
In short, although insolvency is nine years off, waiting to address it will only require deeper cuts and/or higher taxes somewhere down the line. Given the lack of political will to address this problem, is it any wonder why 83 percent of GenXers doubt they will receive Social Security?
But it doesn’t have to be this way. Policymakers have tools at their disposal to reform Social Security and make sure the program remains viable for future generations. Using investments is a good place to start. When the Federal Railroad Retirement System (FRRRS) had an imbalance between retirees and active railroad employees paying into the Railroad Trust Fund, President George W. Bush and Congress allowed Railroad Trust Fund investments to diversify from Treasurys. Since then, the portfolio’s returns have averaged 8.9 percent annually and the fund now has a surplus.
Many successful state and national pension programs also use diversified portfolios. These include the Wisconsin Retirement System, the Canada Pension Plan, and the Ontario Teachers’ Pension Fund. According to the National Institute for Retirement Security, for solvent funds such as these, about 63 percent of receipts come from investment earnings alone.
I am leading a bipartisan group of senators to fix the problem now, before things get worse. We propose placing $1.5 trillion over five years in a diversified investment fund separate from the Social Security Trust Fund. The investment would be held in escrow for 70 years to take advantage of compounding. Under this plan, the 24 percent benefit cuts are eliminated and 75 percent of the Social Security shortfall is covered. This model presumes a greater rate of return from investments than the cost of borrowing, which has been true since at least 1929.
This concept is not new. In 1999, President Bill Clinton suggested a diversified investment strategy for Social Security within the Social Security Trust Fund. In 2004, President Bush suggested individual diversified investment accounts where the individual bore the risk of market fluctuations. Our proposal is different. While it would establish a diversified investment strategy, much like Clinton and Bush proposed, it would do so in a fund separate from the Social Security Trust Fund. Additionally, in our proposal the government — not the American people — bears the risk, and beneficiaries receive promised benefits regardless of market changes.
The fund also has guardrails to prevent political meddling. It would be run by independent trustees, not by Congress, with a fiduciary obligation to maximize returns. There would be annual audits published online to ensure, among other things, that there is no activist investing or political interference.
Where political leadership is needed, however, is in covering the remaining 25 percent of the shortfall that our plan does not account for. Seniors and those close to retirement should not pay higher taxes or see benefits decrease, of course. But real solutions require a plan that does something more than the Do-Nothing plans that both Biden and Trump propose.
Indeed, in nearly two and a half years in office, President Biden has not introduced a plan to address Social Security solvency. He has made no attempt to work with Republicans or Congress more broadly, and he doesn’t have any plans to start now. Trump previously called for increasing the eligibility age to 70, but now he criticizes anyone who tries to solve the issue.
But criticizing is easy. Actual political leadership, particularly on an issue of such consequence to so many people, is much harder. If Americans want to ensure that Social Security benefits will be available to future generations, they need to move on from Biden, Trump, and their bipartisan Do-Nothing plan.
Bill Cassidy is the senior U.S. senator from Louisiana.
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