CNBC’s Joe Kernen recently talked to former President Donald Trump about welfare reform. He called it “a third rail of politics” and said that Trump and President Joe Biden don’t have much in common on the subject. The argument that followed proved both points of view to be true and showed once more that politicians from both parties refuse to seriously deal with or even admit the coming Social Security and Medicare crises.
“There is a lot you can do in terms of entitlements, in terms of cutting and in terms of also the theft and the bad management of entitlements,” he said. “I will never do anything that will jeopardize or hurt Social Security or Medicare,” Trump said in response. The Biden campaign used Trump’s comment as proof that he wants to “slash Social Security and Medicare.”
Biden also said he would “protect” both schemes. “If anyone here tries to cut Social Security or Medicare or raise the retirement age,” he said this month in his State of the Union speech. “I will stop you.”
Biden said “many of my friends on the other side of the aisle want to put Social Security on the chopping block.” But the truth is that Republican House leaders don’t want to support real changes to entitlements because Trump has told them not to. They are afraid of the political death that Kernen mentioned.
Trump and Biden are wrong when they say that doing nothing will “protect” Social Security and Medicare. If nothing is done, benefits will be cut automatically in less than ten years.
New estimates say that Social Security’s trust fund “will become depleted” in 2033, but that “continuing program income will be sufficient to pay 77 percent of scheduled benefits.” That will happen in two years, and Medicare’s hospital insurance trust fund “will be enough to pay 89 percent of total scheduled benefits.”
According to the trustees of the programs, “lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls.” But Trump and Biden have said no to almost all of them.
In his State of the Union speech, Biden did make a reference to one possible change to Social Security. He said that he would “protect and strengthen Social Security and make the wealthy pay their fair share.” To raise the limit on income subject to the Social Security payroll tax above $168,600, as my Reason colleague Eric Boehm points out, it would go against Biden’s promise “not to raise taxes on anyone earning less than $400,000 annually” and would not “come close to solving the long-term Social Security shortfall.”
The answer Trump seemed to have in mind, which was to fight “fraud and waste,” would be good, but it will not work. In 2023, for example, Republicans in the House said that Social Security had made “$16 billion in improper payments” over the last five years. This is real money, but it’s a small amount compared to the $4.5 trillion cash loss the program is expected to have over the next ten years.
Because fewer people are working and more are retiring, there is a difference between how much money is expected to come in and how much it costs to run both programs. That gap can only be closed by making more money, spending less, or (more likely) doing both.
Some of these changes could be raising the age of retirement, taxing high-income Americans more on their wages, or limiting benefits to seniors who really need the money to pay their bills. Right now, Social Security moves money from workers who are generally wealthier to seniors who are generally less wealthy. That doesn’t make much sense if the goal is to keep older Americans from being poor, which is how the program was originally thought of.
It’s not a surprise that politicians don’t want to suggest these kinds of changes. The Republican Study Committee suggested last week that the minimum age for full Social Security payments be slowly raised from 67 to 69. The White House quickly rejected this modest idea.
Attacks like these make people afraid, which makes lawmakers want to keep putting things off. But the punishment that they will have to face will hurt more the longer they wait.