Whatever We Do, We Must Not Let Congress Reform Social Security

Social Security was a monstrous mistake. That’s paradoxically why it must not be “reformed.” Reform would unleash a spending frenzy from Congress on a series of small mistakes that have the potential to eventually become monstrous ones. See George Will’s recent column for evidence.

About the origins of Social Security, Will writes that “Ninety-one years ago, President Franklin D. Roosevelt proposed Social Security as — how quaint this now seems — protection against “poverty-ridden old age.” Yes, precisely. If we can ignore the folly of fighting poverty by extracting precious wealth from a private sector that’s been fixing poverty for centuries, we can at least see that Social Security’s origins were modest.

All federal programs begin modestly. Which is why they must not be introduced, no matter how small. Will shows why in answering whether Congress will consider shrinking Social Security: “Think about prying a bone from an entitled bulldog.” Will’s answer is quite bullish.

To see why, contemplate where we may be headed. Will writes that the Social Security “funding stream is projected to be exhausted before the 2032 elections.” Yes, bullish. 

While alarmists claim 22% Social Security benefit cuts will result from an exhaustion of Social Security funds, Will notes that what’s got the alarmists worked up isn’t “arousing public anxiety.” Of course not, and that’s because the cuts aren’t happening as Will has been writing for quite some time, and as has been written here for as long retirement has been a subject here.

There will be no Social Security benefit cuts simply because per Will, there “will be an infusion of general revenues to supply the difference between what payroll tax revenues bring in and benefits send out.” Yes, exactly that. In other words, the surest sign no benefit cuts loom can be found in the total lack of a “lockbox,” or Social Security “trust fund.”

Why is this bullish? See Social Security’s modest origins yet again. Now that it’s large, and now that the “entitled” refuse to give it up, Congress’s ability to introduce new programs is constrained. Monstrous a mistake as Social Security was, it’s something Americans have worked around as the growing private wealth of retirees indicates. And with the mistake already “priced” as is, let’s use the mistake as best we can: as a barrier to new programs before federal tax revenues soar.

Which speaks to the lone area of substantive disagreement with Will’s column. He refers to Anthropic co-founder Dario Amodei’s prediction of “so much growth” resulting in soaring tax revenues as “counting imaginary chickens from unhatched eggs.” Except that the markets for Treasuries seem to agree with Amodei. For evidence, see how yields are unchanged since 2007 despite a quadrupling of the national debt. If that’s not a market signal of soaring tax revenues in the future, it’s hard to know what is.

So, let’s not reform Social Security now as a barrier to the introduction of new federal programs. At the same time, let’s trust Treasury markets. They’re telling us federal tax collection pales in comparison to what it will be thanks to rising economic growth. The federal revenue part of this equation is dangerous: as the last 45 years remind us, nothing drives federal borrowing more than economic growth and the tax revenues associated with it.

In short, too much tax revenue enabled the rise of Social Security and its subsequent growth. To avoid more Social Security mistakes in the future, let’s reduce taxation so substantially that there’s little money to launch future entitlements however small, and little investor interest in lending to a government taking in progressively less tax revenue.

Originally published on Real Clear Markets.