r/neoliberal • u/zqbv feminist boyboss đź’Żđź’Ż • 5d ago
President Biden Should Veto the Social Security Fairness Act Effortpost
Hello, and Happy New Year to everyone in this great, neoliberal community. Bless the shareholders and the fractional reserve banking system <3
This is my first "true" effortpost. I am not an academic or credentialed expert, just a mere political hobbyist and a human driven by curiosity. As such, please take my argument with a healthy dose of skepticism...but also an open mind :) I promise to return the favor!
Biden is expected to the pass the Social Security Fairness Act before his presidency is over, after the Senate passed the bipartisan reform in a 76-20 vote and the House passed it 327-75. I make the argument that Biden should break ranks with Congress and veto the bill once it appears on his desk.
Some Background
1.1 Expenses
For our international audience, I will provide a very brief review of how social security is structured. As you may already know, the purpose of social security is to provide a supplementary revenue stream to retired Americans, their dependents and survivors. As of 2023, the SSA has provided economic aid to over 67 million Americans, covering 20% of the population. In dollar terms, $1.38 trillion in benefits was given out for that year. If we exclude disability insurance (DI) and only look at old-age and survivors insurance (OASI), that figure is only reduced to $1.28 trillion. For the sake of simplicity, I'm going to lump both OASI and DI together, but understand that the same conclusions ought to stand even if DI figures were subtracted.
Sounds like big numbers! But is that actually a lot for Uncle Sam? Well, I'll present you the data.
Sticking to 2023, the U.S. spent $6.1 trillion in total outlays. (Note that this figure combines both mandatory and discretionary spending.) So around 21% of annual spending goes to the retired, disabled, and their loved ones, which makes Social Security America's most expensive program. For additional context, the same source tells us Medicare (the second-most expensive program, which also benefits the old/retired) was at $839 billion. If we combine the two, then that means 35% of our spending directly benefits the elderly. This is why so many people freak out about the "old-age demographic crisis" -- taking care of our fellow retired citizens is expensive!
(What about foreign aid, some may ask? According to the Brookings Institute, foreign aid spending was at a mere 1% with $63 billion in 2023.)
1.2 Revenue
OK. It's pricey, but we can't just let old people die. We need to make sure we have a way of paying for this! And indeed, that's what FICA/payroll taxes are for. It is important to note that the existing working population pays for the existing retired population -- there is no account with your name on it. This is a very, VERY common misconception but it is utterly wrong.
The money you pay in taxes isn’t held in a personal account for you to use when you get benefits. We use your taxes to pay people who are getting benefits right now. Any unused money goes to the Social Security trust funds, not a personal account with your name on it.
You should also note that payroll taxes aren't the only revenue stream. Interest from asset holdings and taxes on payouts also play a modest role as well, but the bulk of income (>90%) is from payroll taxes. Source.
Now, we can start digging into the numbers!
1.3 Solvency
Income from payroll taxes—An estimated 182.8 million people paid Social Security payroll taxes in 2023, and 186.7 million people paid Medicare payroll taxes. Income from payroll taxes accounted for approximately 90 percent, 97 percent, and 88 percent of OASI, DI, and HI total income, respectively.
and, more importantly,
In 2023, the OASI Trust Fund’s cost of $1,237.3 billion exceeded income by $70.4 billion. In contrast, the DI Trust Fund’s income of $183.8 billion exceeded cost by $29.0 billion. Combining the experience of the two separate funds, Social Security’s cost exceeded income by $41.4 billion.
And this is the problem. Starting in 2021, social security payments began to exceed revenue, and it is projected that this gap will widen. Since social security was profitable the prior 40 years, there is currently a trust fund which makes up the difference.
But that trust fund isn't infinite. According to the SSA's annual trustees report, if there is no course correction, there has to be a benefits cut in 2035, with 83% of benefits payable.
So what does this mean? If you're austerity-minded, you will say we should consider cuts now to even out the costs and minimize harm on in the aggregate across both today's retired Americans and the retired Americans of the future. If you're less austerity-minded, you may advocate to raise more revenue through some sort of change in the tax code.
Both make sense.
But one thing which should be obvious is that we shouldn't needlessly double-down in our current, unsustainable trajectory.
The Social Security Fairness Act (SSFA)
So what does the SSFA do?
Decades in the making, the bill would repeal two federal policies — the Windfall Elimination Provision and the Government Pension Offset — that currently limit Social Security payouts for roughly 2.8 million people, according to reports from the Congressional Research Service.
The policies broadly reduce payments to two groups of Social Security recipients: people who also receive a pension from a job that is not covered by Social Security and surviving spouses of Social Security recipients who receive a government pension of their own.
People who worked in state, local and federal government jobs have been heavily affected by the policies, as have teachers, firefighters and police officers, according to lawmakers and advocates.
Both provisions would be repealed by the bill, thereby increasing Social Security payments for many.
There are two "angles of attack" here, and I will pursue both.
2.1 Fairness
I'm going to start by addressing fairness.
The Windfall Elimination Provision (WEP) applies to workers whose employers did not withhold taxes for SS payments.
Indeed, from our friends at the SSA:
The Windfall Elimination Provision (WEP) can affect how Social Security calculates your retirement or disability benefit. If you work for an employer who doesn’t withhold Social Security taxes from your salary, any retirement or disability pension you get from that work can reduce your Social Security benefits. Such an employer may be a government agency or an employer in another country.
If you receive a retirement or disability pension from a federal, state, or local government based on your own work for which you didn’t pay Social Security taxes, your Social Security benefits may be reduced. You may not receive any payment at all.
"Wait a minute! You pointed out earlier that social security isn't structured like a 401k or IRA retirement plan! Just because they didn't pay SS taxes doesn't mean they should be denied SS payments! Our moral obligation to the elderly isn't a function of how they treated their elderly back in the day!" - the smart reader who has been paying attention
In principle, this is a fair objection. However, I am actually going to emulate my lovely Rawlsian friends and retort with their standard social contract theory predicated on fairness.
Claim: To the extent the state can legitimately do so, it has an obligation to ensure one's quality of life and wellbeing is not a function of whatever generational cohort they were born in.
I will posit that any liberal who is approaching in good faith will find the above claim reasonable. By playing favorites and allowing existing retirees to disproportionately benefit relative to future retirees (tradeoff between benefits payments now vs in the future), we are in effect acting as a gerontocracy. Like any other societal structure where one class benefits at the expense of another -- and the class division is based on some sort of immutable, inherent characteristic -- this would be illiberal.
Pedantic? Yeah, it is. But even "little" things like this matters if we are serious in creating an open society.
2.2 Impact on Solvency
We will close by taking a look at the material impact. Maybe I'm just making a mountain out of an anthill!
We will use figures from the CBO. Looking at this PDF, we see that the CBO estimates a $196 billion increase in outlays as we go up to 2034. This figure does not include the cost of servicing debt -- AKA interest. If we go with estimates from the National Taxpayers Union, which include this additional cost, the figure balloons to $233 billion. But a quick google search indicates this may be a biased source. I'll be very generous and just say $200 billion to make the numbers easy.
That averages out to an additional $20 billion extra in spending every year for the next ten years. Or, if we stick to the $6.1 trillion for total U.S. government expenditure in 2023, we can say it's only a 0.3% increase. Not a lot of impact on the margin for federal spending.
But remember, the money comes from the trust funds. Consider this letter from the CBO to Senator Grassley, discussing the potential impact of the SSFA on the OASI and DI trust funds:
If H.R. 82 was enacted, the balance of the OASI trust fund would, CBO projects, be exhausted roughly half a year earlier than it would be under current law. (The agency estimates that under current law, the balance of the OASI trust fund would be exhausted during fiscal year 2033.)
So six months of (partial) lost income for our future retired Americans to pay even more money to our existing retirees -- despite the fact that they themselves didn't have to pay as much in taxes back when they were working.
Taking a step back, this one adjustment alone isn't going to be the straw that breaks any camel's back. But death by a thousand cuts is a real thing, and needless pieces of legislature like this contributes to it. The SSFA will not help our country in the long-run and it is a disservice to future generations.
President Biden should take advantage of the lame duck period and reject this bill.
Thank you for reading this whole thing! :) Constructive criticism is welcome and shall be taken in good faith.
-16
u/GaBeRockKing Organization of American States 5d ago
Cutting payroll taxes and SS INCREASES the net income of elders with children, because those children can then spend their time and effort caring for their parents instead of working to support freeloaders, and because less deadweight loss from taxation improves economic efficiency and lowers prices for labor and goods.