On Tuesday, Jeb Bush joined the growing Republican call for Social Security reform. Though his initial plan for reform is vague still needs refinement, any push to curtail Social Security’s irresponsible growth should be welcomed. This is especially true when other Republican presidential candidates—including Donald Trump, Mike Huckabee, and Rick Santorum—still prefer to pretend that there is not an entitlement crisis. Though this is a laughable claim, the burdens that unfunded entitlement promises place on young Americans are no laughing matter.
Many people know that America is $18 trillion in debt, but few know that this only captures a small portion of the total fiscal burden. When future spending obligations on health and retirement programs, such as Social Security and Medicare, are compared with future tax obligations, the so-called fiscal gap is $210 trillion. This is 12 times GDP and 16 times official debt held by the public. Past laws and current inaction by policymakers have placed a substantial fiscal burden on young Americans who never voted for these health and retirement programs.
Because of strong public support, the Social Security program is not going anywhere. However, it needs to move from a pay-as-you-go system, where what is paid in is quickly paid out, to a sustainable system that allows payments to grow as investments that can help pay for retirement. An adjustment in benefit calculations and an increase in the retirement age, which are both endorsed by Bush and the bipartisan (but failed) Simpson-Bowles Commission, will go a long way toward correcting Social Security’s troubled finances. For example, Bush suggests increasing the eligibility age by a month each year starting in 2022. He also argues that benefit growth can be slowed by switching to a more accurate measure of purchasing power changes and limiting the amounts received by wealthy retirees.
As Bush makes clear, it should be celebrated that life expectancy has increased since Social Security began. However, this program needs to adjust with the changing reality.
The beginnings of Social Security go back to 1935, when the Social Security Act became law. The Act was intended to provide for the needy and destitute and had humble beginnings. In 1937, the program included a mere 53,236 beneficiaries who received a total of just $22 million in today’s dollars. Considering that the American government now spends $7 million a minute, this is not a substantial amount of money by today’s standards. By the end of 2014, total beneficiaries amounted to 59 million—over 1,000 times more beneficiaries than in 1937. In fiscal year 2014, Social Security cost $845 billion—nearly 40,000 times what it cost in 1937, adjusted for inflation—amounting to 24 percent of federal spending.
While poverty among some members of the elderly population is still a problem, today’s retirees differ drastically from those of the past in terms of wealth. The average household headed by someone 65 years and older has nearly 50 times the wealth of a household headed by someone 35 years and younger. In 1984, this ratio was 10:1.
Bush’s Social Security proposal can serve as an opening to discussion among serious candidates. One can only hope that he has better luck than his brother had in 2004.
President George W. Bush started exploring Social Security reform in his first term. But it was not until after winning reelection that he actively pushed to allow individuals to put a portion of their Social Security contributions into private accounts and then pass the accounts on to their heirs at death. Unfortunately, as with most attempts to take on “the third rail of American politics,” his efforts failed. While his proposals were far from perfect, opponents shut down debate before the county had a chance to have a constructive public discussion.
While the situation is dire, there is hope for reform. The American public has a newfound concern about mounting federal debt—nearly 8 in 10 Americans agree that the national debt should be among Washington’s top three priorities—and some members of Congress are starting to respond to public pressure. A strong majority—73 percent—of millennials favor allowing people to have private Social Security accounts.
While righting the course of America’s fiscal ship will not be easy, delaying action will only make matters worse. Politicians on both sides of the aisle need to pull their heads out of the sand and realize that Social Security is going broke, and that millennials will end up paying for Washington’s inaction.