The “Third Rail” is Fully Charged
How mentioning the unsustainability of our major entitlement programs triggered verbal attacks by an angry mob of seniors
Anyone following me should know that I’m heavily invested in the issue of Social Security reform. I’ve written a book on the subject and posted numerous essays here on Medium. I’m fully aware that seniors are sensitive to any suggestion of tampering with their benefits and took that into consideration in formulation and presentation of my radical ideas regarding transition to a system designed to benefit citizens of all ages. However, I was surprised by the vicious attacks on a Washington Post columnist who merely questioned our “seemingly bottomless commitment” to the elderly vs. needs of younger generations.
The title alone (Why we’re borrowing to fund the elderly while neglecting everyone else) was sufficient to enrage some of the 7100 readers who submitted comments online. I spent several hours reading probably a thousand; most were sniping at the author or one another. Despite the scarcity of sanity and humanity, I decided there was something to learn from them.
I’ve read the Post daily for about 20 years now, pay special attention to the Opinions section, and always read Catherine Rampell’s column. I don’t always agree with her, but I respect her talent and perspective. Her experience has probably prepared her for harsh criticism that would crush most of us, so while many readers of this piece all but called for her execution, I fully expect her to write more on this subject. At least, I hope so, because we must have this difficult conversation and have waited too long already for our elected officials to initiate it. We need people like Catherine (with exposure to millions of readers) to get the public engaged.
It will get nasty. If we see this much vitriol in response to a few reasonable questions, we can only imagine the response to any serious reform proposal. The debate is inevitable, and this enormous sample of comments by passionate readers offers an opportunity to prepare.
It’s tempting to dismiss most of these comments as ignorant rants, but like it or not, perception is reality in politics. Whether or not people are well informed or exhibit skill in voicing their opinions, anyone sincerely interested in effective public policy must try to understand them.
I will not attempt to analyze the characteristics and motives of Post readership or behavior of online communities. It will be more constructive to summarize several categories of comments that appear to represent genuine, relevant concerns. We’ll likely see them again, because they really have very little to do with this article or its author. Eventually, someone (maybe even me) will need to respond.
The rest of this essay will be far more informative if you’ve read the Opinion piece (link at the beginning of the second paragraph under the photo), which presents data from an Urban Institute study that show Social Security and Medicare obligations are crowding out other domestic spending because Congress is reluctant to raise taxes to pay for “investments in pre-K, child care, paid parental leave, or a more generous child tax credit.”
The title was a bit provocative, and there are several suggestions that Congress is afraid of older voters. However, where I (and, I hope, most readers) saw an appeal to proactively consider the tax burdens and needs of younger voters, thousands of readers pounced on any and every conceivable error, omission, or suggestion that seniors may be getting more than their fair share of federal spending.
Here are the highlights, which I’m presenting as objectively as I can. Following each of them are my thoughts in italics.
Remove the cap on earnings taxed for Social Security
Of those seeking solutions (a minority of those commenting, unfortunately), the vast majority favor eliminating the cap on earnings subject to the payroll tax (currently $160,200). Some erroneously assumed this would automatically increase maximum benefits, thus erasing the fiscal benefit of the measure. Many noted that we could improve equity by subjecting unearned income to the tax.
In a post earlier this year comparing solutions to the solvency issue, I pointed out that while this is easy to do, “it may prompt creative compensation arrangements to avoid salaries subject to the payroll tax. In addition, it perpetuates the inter-generational inequity of taxing younger workers to pay benefits to older non-workers. Since taxes on this group of people are unlikely to affect benefits, anyway (due to the maximum), taxing their incomes … makes more sense.”
None of the solutions receiving significant attention (raising payroll tax rates, capping maximum benefits, removing the cap on taxed earnings, or raising income taxes on high earners to shore up the trust fund) actually help low income workers or retirees.
We should eliminate the payroll tax, which hurts low income workers and could be put to better use by middle income workers. The tax also adds to future obligations. Payment of benefits earned to date can be funded by income taxes, which expands the tax base to include non-wage income.
Reduce defense spending
Some commenters who share the author’s concern about the squeeze on domestic spending identified our bloated defense budget as a source of savings.
According to the FY 2024 President’s Budget, estimated defense outlays will be $880 billion in FY 2024. Non-defense discretionary outlays total $992 billion. Mandatory outlays are estimated at $1,459 for Social Security, $842 billion for Medicare, and $556 billion for Medicaid.
Defense consumes almost as much of discretionary funding as the rest of government combined, so it’s clearly a primary target for any serious effort to cut total spending.
Means testing and welfare
Many believe Social Security is a form of savings or insurance because benefits are tied to contributions. Some of them fear that limiting benefits to those with low incomes will erode public support by making it a welfare program. Numerous commenters resented the term “entitlements” because they think it means welfare and they paid for their benefits.
Here is an excerpt from my book: “Social Security was conceived as a forced savings program designed to help workers invest in their own retirement. But there is no fund and certainly no asset individuals control and pass along to survivors. Workers do not build any wealth and their financial security is entirely under state control. It is actually a redistribution program because workers pay taxes that the government uses to pay obligations to others….
Social Security benefits are determined by contributions, which are tied to earnings. This means those who are least in need of the pension receive the largest benefit payments — a practice that reflects a very strange idea of income security.
As the program approaches a full century of operation, benefits as a percentage of contributions are falling, and unless it is radically reformed, we may soon be paying retirees less than they paid into the program. Unless payments are means-tested, we will be punishing those most dependent on the system.”
Just eat the rich already
Lots of people blamed any and all deficit problems on tax cuts going all the way back to Reagan. They advocated repeal of those cuts and increased collection efforts.
I agree 100%. Here’s another line from my book: “Entitlements are blamed for budget deficits even as a trillion-dollar tax cut [TCJA] is passed to appease Wall Street. Enough is enough!”
Confusion about trust fund financing
Some claimed the trust funds were stolen, while most realized that they were just borrowed by the Treasury. However, the shell game has fooled many into thinking that payroll tax revenues are still covering benefit payments.
At least no one mentioned a lockbox. According to the 2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, “Social Security’s total cost is projected to be higher than its total income in 2023 and all later years,” and “The reserves of the combined OASI and DI Trust Funds along with projected program income are sufficient to cover projected program cost over the next 10 years under the intermediate assumptions.”
What then? As noted under the first item on this list, one solution is to supplement payroll taxes with general revenue. But I’ve advocated eliminating the payroll tax altogether and see no need for the trust fund. As Romina Boccia (currently at the Cato Institute) wrote in a Heritage Foundation report in 2017:
Since the Trust Fund is merely an accounting mechanism with no real savings to pay Social Security benefits coming due, there would be little harm in eliminating the Trust Fund altogether…. The absence of this illusory Trust Fund would more likely clear the path for reasonable Social Security reforms. It would enable the nation to recognize the very real and increasing burden on younger generations from unfunded Social Security benefits. It would also reveal the folly of proposals that would create Social Security surpluses in the short run while increasing liabilities over the long run.
Rein in health care cost
Plenty of commenters identified the relentless increase in medical expenses (including Medicaid and ACA subsidies, in addition to Medicare) as a problem in need of legislative attention to curb excess profits by providers, insurance companies, and pharmaceutical firms. Some suggest Medicare-for-all.
There’s no denying that our health care system needs more work. However, before engaging yet another battle over the federal government’s role in this arena, we need to address income security more generally. Other basic needs (e.g., housing and education) are also increasing faster than wages.
My proposal to replace the payroll tax includes a provision that would make employer-paid health insurance premiums taxable to individuals. Due to the high standard deduction, lower income individuals may not see any increase in federal income tax liability; if they do, it will be offset by payroll tax savings. To equalize treatment of individuals with and without employer health plans, all health insurance premiums and out-of-pocket medical expenses would qualify as adjustments to gross income, i.e., not taxable.
For the record, seniors have fared much better than younger Americans over the last few decades. As indicated in the chart below, real median incomes of American households whose reference person (formerly “head”) is 65 or older increased by over 50 percent from 1989 to 2019. Meanwhile, for those under 35 or 55–64, the increase was about 20 percent, and for those 35–54, incomes were flat.
Hooray for older households that are doing well due to thrift and prudent investment, but for many of them, there is no question that at least some of their relative prosperity is due to payroll taxes levied on younger workers.
In his 1962 book Capitalism and Freedom, Milton Friedman said of Social Security,
I do not see any grounds — liberal or other — on which this particular redistribution can be defended. The subsidy to the beneficiaries is independent of their poverty or wealth; the man of means receives it as much as the indigent. The tax which pays the subsidy is a flat-rate tax on earnings up to a maximum. It constitutes a larger fraction of low incomes than of high. What conceivable justification is there for taxing the young to subsidize the old regardless of the economic status of the old; for imposing a higher rate of tax for this purpose on the low incomes than on the high; or, for that matter, for raising the revenues to pay the subsidy by a tax on payrolls?
Especially with our aging population, it is vital that we shift to general funding of Social Security benefits and revise distribution formulas to focus on poverty relief.
