The Real Social Security "Crisis": More Tax Revenue for Congress

Writing in the Wall Street Journal last week, former Fidelity Investments head Robert Pozen wrote what he always has, and that countless budget and Social Security scolds have written before him. According to Pozen and a Rose Bowl-sized collection of commentators who’ve come before and who’ve yet to come, a combination of benefit cuts and "revenue measures" (yes, tax increases on the richest earners) will stave off the coming “crisis” related to Social Security.

It’s plainly never occurred to Pozen and other self-regarding promoters of eternal “crisis” that too much tax revenue was, and remains, the problem. But we’re getting ahead of ourselves.

To grasp the abject absurdity of Pozen's Social Security fixes, it’s best to travel back in time to the 1983 reform. If it reads a lot like Pozen’s, that’s because it does.

There’s the “gradual increase in retirement age,” “payroll tax increases,” and taxation of Social Security Benefits for “higher-income recipients.” Translated, higher levels of income would be subject to the tax. About right here AIs that could have written Pozen's piece for him in seconds might write “meet the new Social Security solution, same as the old one.” Instead, this human-authored opinion piece will simply say that Pozen et al are the crisis.

Their solutions will fail for precisely the reason past ones have: they presume that more tax revenue flowing into Social Security, combined with reduced Social Security cost burdens, will solve the “crisis.” Wrong. In all ways. Said another way, if Pozen et al get their way, Social Security will continue to grow, alongside government itself. See what’s happened since 1983 for evidence. Which is why the better solution is to do nothing. Pozen unwittingly explains why.

As AI could have written for him, there’s a looming 22% “reduction for every beneficiary” starting in 2032 whereby a “retiree collecting $2,000 a month would lose about $440 a month.” Except that Pozen knows that not only won’t happen, but doesn’t need to. As he concludes, one way around the latter is if Congress waits “until the crisis hits and bail out the system by issuing more U.S. Treasurys.” Yes, precisely.

A Congress that long spent excess Social Security revenues will now have to dip into general revenues or borrow to pay for a program the existence of which long funded congressional spending unrelated to Social Security. There’s your solution. Get it?

If Congress is forced to bail out a Social Security program that it has been raiding since the 1940s, then Congress will see its own capacity to spend on non-Social Security programs very much constrained. And if Social Security isn’t at all reformed, Congress will be further constrained.

By showering Social Security with even more revenue on the path to solvency per Pozen, Congress would be given more spending power. Only for the problem to get worse: a Congress buoyed by more Social Security tax revenues would similarly have more dollars to spend thanks to reforms of a program that presently restrains Congress. As is noted by Pozen et al, Social Security accounts for growing amounts of federal spending, and interest payments. That’s a feature of it, not a bug.

Except that seemingly every Social Security “solution” is all about throwing even more tax money at a program that has grown precisely because it’s long been a source of too much revenue for Congress. The reverse is at long last happening to the detriment not of Social Security recipients (Pozen once again knows Congress will not cut their benefits), but Congress itself. Let this state of play come to its brilliant fruition.

Originally published on Real Clear Markets.