Why Is US Social Security In A State Of Collapse
The lack of future funding for the welfare state is by no means a French problem alone. The US is staring a similar crisis in the face, only unlike the French our political class is refusing to do anything about it.
Social Security, the US pension system, is very rapidly heading towards insolvency. It is already sending out more than it is taking in and is on target to be depleted by 2034 according to its trustees.
This very week that deadline was advanced a whole year to 2033 by another report which was sobering and demonstrated just how quickly this is heading in the wrong direction. We are now under a decade away and our political system is not treating this with the seriousness it deserves.
In fact it is doing the exact opposite.
The timing is fortuitous in a way because the US is coming to a very tough cliff edge on raising the US debt ceiling later this summer. But the US political class is not seizing the opportunity to have some tough conversations - in a bipartisan way - and make some tough choices.
Because entitlement programs are now over half of the Federal Budget it would seem obvious to use this deadline as a forcing mechanism and enact some sensible and targeted reforms.
That is not what is happening, however.
This isn't because we don't have proposals. To the contrary, we have an abundance of them. There are plenty of experts who have carefully crafted plans to save Social Security that have been discussed and debated for years.
There are, generally speaking, three broad buckets:
You could change the basic Social Security requirements such as the retirement age as the French have done.
You could set up alternative retirement plans funded by some combination of employers and employees etc.
You could means test the benefits based on wealth or lifetime income or some combination thereof. This would remove some benefits from the well off and protect funds for the remaining rump of workers.
Once again, reasonable people can disagree about the above and there are advantages and disadvantages to each plan or a combination thereof but the key is to do something and do it quickly.
Naturally, of course, both Democrats AND Republicans have already ruled out making any changes to entitlement programs which includes Social Security.
The Republicans have done so because unless such cuts are bipartisan they are well aware that it is a political non starter and would be used as a cudgel to beat them mercilessly. Meanwhile the Democrats seem to be simply ignoring the issue. President Biden's recently released budget, full of gigantic spending pledges, made precisely zero mention of Social Security.
Both of these approaches are foolish and cowardly. The solution is generally understood. This is a spending problem, not a revenue problem. We won't be able to tax our way out of this problem. We need to make significant changes to our planned expenditures.
But regardless of why the parties are foreswearing action and what the answer is, the key is that they are unlikely to do much of anything, any time soon. This raises, not lowers the significance of the problem.
In classic American fashion, we are going to let this problem grow until it truly reaches crisis proportions.
There are really only two options:
Raise taxes
Cut benefits.
Or a combination of the two.
We are pretty humble about being able to predict how this will shake out but it is worth pointing out that cutting benefits to retirees or soon-to-be retirees in an upcoming election year is likely political suicide and so a non-starter.
Thus, of the two, we are reasonably sure that, at least in the short-to-medium term it will be higher taxes rather than cutting benefits that gets chosen. That has already been the preferred behavior of the Biden administration and there is no reason to think they will change their political stripes any time soon.
Soaking the rich sounds great but more often than not the rich simply don't have the numbers to make up enough cash and so new taxes tend to filter down to the rest of us.
Where does this all end up?
It suggests remembering a few broad strokes:
It means that saving for retirement is more important than ever. The only person you can likely rely on to look after you after your working life is over, is you.
It also means that investing in publicly traded stock markets is, over the long term, still the very best plan for doing so.
Take this seriously. The fact that your political leadership - of both parties - is sticking its collective head in the sand increases the importance of you doing the very opposite.
The inaction over Social Security is not the only puzzling actions of the US government either. And it may not be the only instance where indecision ends up costing you.
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