After decades of calls to fix Social Security by reducing benefits, Social Security expansion’s time has come. The idea has certainly been on a roll. Eight years ago increasing Social Security benefits was a fringe position; four years ago only outsider candidates like Sen. Bernie Sanders advocated for it. Today, expanding Social Security is the near-unanimous view of House Democrats and embraced by leading presidential candidates including Sanders and Sen. Elizabeth Warren. But with the House of Representatives slated to act on Social Security expansion, the idea has hit some bumps in the road. The months ahead will tell us whether this high-stakes policy will survive.
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I’m not an advocate of expanding Social Security. Targeted increases for low-income retirees make sense, but across-the-board benefit increases for rich and poor alike are expensive and unnecessary. Retirees’ incomes are already rising faster than those of working-age households and there are a lot of other priorities additional taxes could be used for.
But, as I was quoted in a recent Wall Street Journal article, you have to hand it to the advocates for Social Security expansion. Groups like Social Security Works took the nearly-unknown idea of expanding rather than shrinking Social Security and pushed and pushed until it entered the Democratic Party mainstream. Today, the Social Security 2100 Act, sponsored by Connecticut Rep. John Larson, has co-sponsorship from over 88 percent of House Democrats. Those votes alone are nearly enough to pass Social Security expansion out of the House, the first major reform legislation since 1983. And Larson has repeatedly said the House will pass his bill this year, setting up his plan for potential success if Democrats win the 2020 elections.
But, as with conservative plans for Social Security personal accounts in the late 1990s and early 2000s, it’s when the rubber hits the road that your start to feel some friction.
The first part came with a Congressional Budget Office analysis of the Social Security 2100 Act. Rep. Larson previously had run his plan through the Social Security Administration’s actuaries, who projected that it would keep Social Security solvent for 75 years and beyond – making “Social Security 2100” a fitting moniker. But the CBO, which projects a more dire financial situation for the Social Security program, wasn’t nearly so optimistic. CBO’s most recent figures indicate that Social Security 2100 would add only four additional years to the trust funds’ solvency. “Social Security 2036” doesn’t have quite the same ring as Social Security 2100. And expanding Social Security without first fixing the program we’ve got is easily cast as irresponsible vote-buying. The reality is that Larson cut his numbers too close, designing his plan so it would work if the Social Security actuaries were on the mark but leaving little room for error.
Next up was the Congressional Joint Committee on Taxation, which analyses how legislation affects federal tax revenues. The JCT found that while Social Security 2100 would significantly increase revenues collected by Social Security, it would simultaneously reduce tax collections in the rest of the federal budget. The reason is that, when the Social Security 2100 Act raises the payroll taxes employers must pay on their employees’ behalf, those employers will reduce employee wages to make up the difference. Those lost wages would then no longer be subject to federal income taxes or Medicare payroll taxes. States would also take a hit through lost state income tax revision, but the JCT analysis doesn’t include these. But at the federal level, the Social Security 2100 Act would increase Social Security revenues by $1.629 trillion over the period 2020 through 2029, but reduce revenues to the rest of the federal budget by $719 billion over the same timeframe. That’s less money available to spend on things other than Social Security. People like me warned about this issue years ago, but it’s only when a plan is nearing Congressional consideration that things come into focus.
The third speed bump came this week, in an op-ed published by four Democratic fiscal luminaries, including former Obama administration Treasury Secretary Jacob Lew, Brookings Institution Social Security expert Henry Aaron, former Social Security Commissioner Kenneth Apfel and former CBO director and Social Security trustee Robert Reischauer. In the op-ed, published in the Capitol Hill newspaper The Hill, the four argue that Social Security expansion is too much of a good thing. While the four favor tax increases to keep Social Security solvent, they argue that “the benefit increases that the bill calls for will put additional dollars in the pockets of those whose retirement incomes are already adequate as well as those of people who clearly need help.” Indeed, they fear that “the richest individuals would benefit the most.” The four also fear that large tax increases slated to fund Social Security expansion would “crowd out needed spending on such other benefits for the elderly and disabled as prescription drug reform and improved long term care, as well as for broader national priorities like education, infrastructure, health care, and child care.” And they are right: unless Americans change their views on taxation in pretty fundamental ways, in practice there will be only so much additional new revenues to go around.
Next up may be a “dynamic score” of the Social Security 2100 Act by the Joint Committee on Taxation, one which takes into account how higher taxes affect incentives to work and save. We don’t know when such an analysis will come out, but the conclusions are almost sure to be negative. Economists at the Wharton School of Business concluded that Social Security 2100 would shrink the economy by over 7 percent relative to a plan that would fix Social Security via lower benefits and an increased retirement age.
Many of these same things happened when, with the election of George W. Bush in 2000, conservative plans for Social Security personal accounts suddenly became viable. Those accounts, and the presumably higher returns they would earn on their investments, were touted as ways to reduce the need for tax increases or benefit cuts to balance Social Security. That wasn’t true, but it only became clear it wasn’t true when these Social Security plans went from op-ed pieces to clearly-scored legislation. It was at that point that, despite Republicans holding the presidency and both houses of Congress, that accounts-based Social Security reform withered away.
Progressive activists attached themselves to Social Security expansion because it promised no compromise with conservatives who long sought to reduce the growth of benefit costs. In the process, however, they will run into conflict with fiscal conservatives within their own party. What will determine the success or failure of Social Security expansion is whether there remain enough fiscally conservative Democrats to matter. Time will tell.