Sometime around 2033, the notional “surplus” built up in the Social Security trust fund will be depleted, leaving the program to be funded exclusively by current payroll taxes. Since those taxes coming in will cover only about 80 percent of the benefits scheduled to go out, Social Security checks will have to be 20 percent lower absent congressional action.
Like most fiscal conservatives, I had long assumed two things about the coming Social Security shortfall. First, a reasonable and bipartisan solution would be to combine tax increases with benefit reductions, preferably alongside some structural reforms that discourage early retirement. Second, the longer we wait on enacting the reasonable solution, the more likely we are to be stuck with progressives’ taxes-only alternative.
The reasoning behind the second assumption is simple. A 20 percent across-the-board cut would anger every senior and plunge millions of them into poverty, creating a political emergency that leaves no room for bargaining over reforms. At that point, Congress would have little choice but to accede to new taxes or borrowing to cover the full shortfall. The optimal strategy on Social Security reform for progressives would therefore seem to be delay, delay, delay until everyone else comes over to their position.
But what if the 20 percent cut does not have to be across the board? This potentially game-changing insight is the basis of a new paper by Andrew Biggs and Kristin Shapiro. They argue that the executive branch has the authority to prioritize payments when funding is inadequate. So instead of reducing every senior’s check by 20 percent, the Social Security Administration (SSA) could make up the shortfall by capping payments at a level that is above the poverty line. In that case, even without legislative action, no senior would fall into poverty as a result of the automatic cuts. Indeed, under the Biggs and Shapiro proposal, half of seniors would see no change to their benefits at all.
If SSA were to announce today that this is exactly how it will handle any future shortfalls, then my second assumption — about progressives benefiting from delay — might be wrong. Prioritized payments would blunt the emergency in 2033, creating a more favorable bargaining position for fiscal conservatives. After all, reducing upper-income benefits while preserving Social Security as an anti-poverty program is close to our preferred position!
I am under no illusion that cutting benefits for any seniors, rich or poor, is politically easy. However, as Biggs and Shapiro observe, having SSA adopt their prioritization plan means that the legislative imperative in 2033 would no longer be to save the elderly from poverty. Instead, the debate would focus on how much we should raise taxes for the benefit of upper-income retirees. That shift should at least get progressives to the bargaining table, opening the door for the kind of bipartisan reform that deficit hawks have wanted all along.