Social Security is unquestionably the nation's most important social program, with more than three out of five current retired workers leaning on it to account for at least half of their monthly income. Yet, this crucial program is on shaky ground, with the latest annual report from the Social Security Board of Trustees painting a grim intermediate- and long-term picture for the program. According to the report, Social Security is facing an inflection point this year. For the first time since 1982, aggregate expenditures, which almost entirely includes benefits, but also takes into account administrative expenses and Railroad Retirement exchange contributions, will exceed revenue generated. Although the net cash outflow is only estimated at $1.7 billion, which is relative peanuts when compared to the $2.89 trillion currently in asset reserves, it's a conclusive sign that the existing payout schedule isn't sustainable. Things begin to get really dicey in 2020 and beyond. Beginning at the turn of the decade, ongoing demographic shifts (e.g., boomers retiring, increased longevity, and growing income inequality) are expected to cause the net cash outflow to balloon. By 2034, following 16 years of outflows, the $2.89 trillion in excess cash is expected to be completely gone. Should this happen, Social Security would survive, but payouts to then-current and future retirees could be cut by up to 21%. That's not a pleasant forecast given the noted reliance of seniors on the program. What you should know about the GOP and Social Security Who's to blame for this mess? Well, some Americans would point their fingers specifically at Republicans in Congress. While they absolutely do take some of the blame, the inaction by Republicans and Democrats on Capitol Hill makes them equally culpable in exacerbating Social Security's problems. When it comes to Republicans and Social Security, here are the four things you absolutely need to know. 1. Republicans aren't going to take away Social Security Without beating around the bush, the Republican Party is often associated as being the party of the well-to-do -- and the rich typically aren't reliant in any way on Social Security income. There's, therefore, been a long-running belief that Republicans would aim to do away with Social Security sometime in the future. This is nothing more than another in a long line of pervasive Social Security myths. Both Democrat and Republican lawmakers on Capitol Hill have an understanding of the importance that Social Security plays in keeping some 22 million people currently receiving benefits above the federal poverty line. Though both parties may have suggested tweaking how revenue is generated for the program, neither party would remove or replace any of the three funding sources: the payroll tax on earned income, the taxation of benefits, and interest income on the program's asset reserves. In other words, no Republican is going to advocate scraping Social Security. And even if they did, the idea would have no chance of gaining traction in Congress. 2. They haven't taken a dime from the Social Security program that isn't accounted for Another misconception is that the Republican Party stole money from the Social Security Trust and used it to fund wars. More specifically, Ronald Reagan, George H.W. Bush, and George W. Bush have come under intense scrutiny for borrowing from Social Security and "not putting the money back." However, the truth of the matter is that Congress has been able to "borrow" Social Security's excess cash (i.e., asset reserves) for five decades, and it's happened under every single president over that stretch. In fact, the Social Security Administration (SSA) is required by law to purchase special-issue bonds and certificates of indebtedness with this excess cash. Please note the emphasis on "required by law" that I've added above. The federal government isn't simply going to sit on this excess cash it borrows from Social Security. It's spending this cash on various line items, which may be wars and the defense budget, as well as education, healthcare, and pretty much any other expenditure you can think of. This setup is actually a win-win for both parties. The federal government has a relatively liquid source of borrowing with the Social Security Trust, and the Trust is able to generate significant annual income from the interest it earns on its loans. Last year, $85.1 billion of the $996.6 billion that was generated by the program came from interest income. Most important, every cent that's been borrowed is fully accounted for in the SSA's investment holdings. In other words, if Congress were to "pay the money back," Social Security wouldn't be any better off. In fact, without interest income, it would be considerably worse off. 3. Republicans very much dislike the current COLA measurement You should understand that the Republican Party (like the Democrats) doesn't like the current inflationary tether, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The biggest issue Republicans have with the CPI-W is that it doesn't do a very good job of measuring the inflation that seniors are facing, thereby resulting in an inaccurate cost-of-living adjustment (COLA) each year. That's because, as the name implies, the CPI-W tracks the spending habits of urban and clerical workers, who in nearly all instances aren't receiving a Social Security check. Essentially, seniors' annual raise is tied to the spending habits of non-seniors, and that doesn't sit well with anyone in Congress. In particular, Republicans would like to replace the CPI-W with the Chained CPI. The Chained CPI takes into account the idea of substitution bias, which involves trading down from a pricier good or service to something less expensive if prices go up. For example, if the price of ground beef rises 40%, you might buy pork or chicken instead. The CPI-W does not take into account substitution bias. Although substitution bias does take into account a real-life purchasing strategy of consumers, the consensus view among pundits is that it would result in lower annual COLAs more years than not, relative to the CPI-W. 4. They aim to fix Social Security through long-term expenditure cuts Finally, Republicans do want to fix Social Security, but they are at the opposite side of the spectrum from Democrats on how to do that. Whereas Democrats prefer raising revenue to make up for an expected $13.2 trillion cash shortfall between 2034 and 2092, Republicans want to reduce the program's long-term expenditures. How, you ask? As noted, they'd implement the Chained CPI, which would result in lower annual COLAs, and thereby reduce the amount of expenditures heading to beneficiaries over the long run. Republicans are also big proponents of raising the full retirement age, or the age at which you become eligible for your full retirement benefit. Currently, set to peak at age 67 for those born in 2022 or later, Republicans would like to see this gradually increased to as high as age 70. This would require retired workers to either wait longer to receive their full payout, or to accept a steeper monthly reduction if claiming early. Either way, it reduces the lifetime benefits paid out by Social Security, and thereby saves the program money. Some Republicans, including Donald Trump, have called for a form of means-testing, which would reduce or eliminate Social Security benefit payments for those folks or couples who are wealthy. In sum, the Republican Party isn't going to do away with Social Security, and they haven't stolen a dime from the Trust. However, they are culpable (with Democrats) for the program's problems, and would aim to reduce lifetime benefit payouts to resolve the long-term funding crisis.<doc-sep>After instituting a $1.5 trillion tax cut and signing off on a $675 billion budget for the Department of Defense, Senate Majority Leader Mitch McConnell said Tuesday that the only way to lower the record-high federal deficit would be to cut entitlement programs like Medicare, Medicaid and Social Security. "It's disappointing, but it's not a Republican problem," McConnell said of the deficit, which grew 17 percent to $779 billion in fiscal year 2018. McConnell explained to Bloomberg that "it's a bipartisan problem: Unwillingness to address the real drivers of the debt by doing anything to adjust those programs to the demographics of America in the future." The deficit has increased 77 percent since McConnell became majority leader in 2015. New Treasury Department analysis on Monday revealed that corporate tax cuts had a significant impact on the deficit this year. Federal revenue rose by 0.04 percent in 2018, a nearly 100 percent decrease on last year's 1.5 percent. In fiscal year 2018, tax receipts on corporate income fell to $205 billion from $297 billion in 2017. Still, McConnell insisted that the change had nothing to do with a lack of revenue or increased spending and instead was due to entitlement and welfare programs. The debt, he said, was very "disturbing" and driven by "the three big entitlement programs that are very popular, Medicare, Social Security and Medicaid.… There's been a bipartisan reluctance to tackle entitlement changes because of the popularity of those programs. Hopefully, at some point here, we'll get serious about this." President Donald Trump promised to leave Medicare untouched on the campaign trail, but Republican leaders like House Speaker Paul Ryan and Florida Senator Marco Rubio have long indicated their desire to cut entitlement programs to pay for their tax cuts. "You have got to generate economic growth because growth generates revenue," Rubio said at a Politico conference late last year. "But you also have to bring spending under control. And not discretionary spending. That isn't the driver of our debt. The driver of our debt is the structure of Social Security and Medicare for future beneficiaries." "We're going to have to get back next year at entitlement reform, which is how you tackle the debt and the deficit," Speaker Ryan said on a conservative radio program around the same time. Democrats, meanwhile, jumped on McConnell's admission as proof that Republicans had long planned to cut entitlement spending to fund the tax cuts that largely benefit corporations and wealthy Americans. "The truth comes out! This was their deceptive plan all along," said Representative Lois Frankel of Florida. "When Republicans in Congress said their tax cuts to wealthy multinational corporations would pay for themselves, they lied," wrote Ohio Congressman Tim Ryan on Twitter. "Now, they're going to try to come for hardworking people to foot the bill by slashing Medicare, Medicaid, and Social Security. We can't let them." A recent Pew poll found that the majority of both Democrats and Republicans thought the rising federal deficit and cost of health care were major problems facing the U.S.—something that Democrats are taking note of and will try to package into their midterm campaign platforms over the next three weeks. "Every Republican Senate candidate is on the hook for Mitch McConnell's plan to cut Medicare and Social Security. First it was jeopardizing pre-existing conditions coverage, then it was pursuing an age tax that would charge older Americans more for care, and now it's targeting the benefits Americans have paid into," wrote Democratic Senatorial Campaign Committee spokesman David Bergstein in a statement. "This platform is disqualifying, and just like taking away coverage for pre-existing conditions, it's exactly what GOP candidates don't want to be talking about weeks before the election."<doc-sep>
Republicans have removed all doubt: When it comes to the federal deficit, the problem is Medicare and Social Security — not their own tax cuts for corporations and the wealthy. Fresh off the news that the deficit is increasing under President Donald Trump, Senate Majority Leader Mitch McConnell told Bloomberg News that Congress should target Social Security and Medicare for cuts to address the growing federal debt. The federal deficit grew by nearly $800 billion over the first fiscal year of Trump’s presidency, during which the Republican Congress passed a tax cut targeted mostly to corporations and the wealthy, which is projected to add more than $1 trillion to the deficit over the next 10 years. The White House and GOP leaders promised that despite all projections to the contrary, the tax cuts would pay for themselves. That hasn’t materialized so far. You may recall that many Republicans said their tax cuts would "pay for themselves" through increased growth/revenues. In the first nine months, they are not -- by any measure. https://t.co/N8H8Gjr3a5 — Jim Tankersley (@jimtankersley) October 15, 2018 But, of course, a growing federal deficit hasn’t caused Republican leaders to reconsider their tax policy. Instead, they argue that entitlement reform — Republican-speak for cuts to popular social safety net programs — is what’s really needed to address the federal deficit. From McConnell’s interview with Bloomberg this week: Senate Majority Leader Mitch McConnell blamed rising federal deficits and debt on a bipartisan unwillingness to contain spending on Medicare, Medicaid and Social Security, and said he sees little chance of a major deficit reduction deal while Republicans control Congress and the White House. “It’s disappointing, but it’s not a Republican problem,” McConnell said Tuesday in an interview with Bloomberg News when asked about the rising deficits and debt. “It’s a bipartisan problem: unwillingness to address the real drivers of the debt by doing anything to adjust those programs to the demographics of America in the future.” Republicans were actually signaling during the tax debate, before the bill ever passed, that this was their strategy: pass a deficit-exploding tax cut and then argue that the real problem is federal spending on health and retirement benefits. It is true that those programs make up a large share of federal spending: Medicare was 15 percent of the federal budget in 2017, and it’s projected to grow to 18 percent by 2028. Social Security is a bigger chunk of the budget (24 percent in 2016), and it is on a similar trajectory. An aging population will put a strain on the program like it hasn’t seen before. But on the other hand, Social Security benefits in particular are not exactly robust — the average check is just $1,300 a month — and we know that the program plays a big role in helping American seniors stay out of poverty. Social Security kept 27 million people out of poverty in 2017, as Vox’s Alexia Fernández Campbell reported last month. But the GOP’s priorities on the deficit are clear: Corporate taxes were too high, and now that they’ve been cut, government benefits are too generous, so they must be cut too. The trade is explicit. Governing is about priorities. Democrats have run on expanding Social Security benefits and extending Medicare coverage to every American. They’re proposing higher taxes on the wealthy and on corporations to pay for those plans. Republicans are going hard in the other direction: lower taxes for businesses, fewer benefits for vulnerable Americans. However, McConnell made an important concession in his Bloomberg interview: Without bipartisan buy-in, entitlement reform is unlikely. President George W. Bush invited political backlash and electoral defeat in the 2000s when he pushed for a Social Security overhaul. In 2018, even with the deficit rising again, it seems Republicans aren’t interested in trekking out on their own on entitlement reform. The political risk may be too great. “I think it’s pretty safe to say that entitlement changes, which is the real driver of the debt by any objective standard, may well be difficult if not impossible to achieve when you have unified government,” McConnell told Bloomberg. But make no mistake about the long-term agenda: Now that Republicans have cut corporate taxes, they stand ready and willing to cut Medicare and Social Security.