For decades, Washington politicians have selfishly and foolishly enjoyed a luxury: they could ignore the looming insolvency of Social Security. The senators elected this fall will not have that same privilege.
By 2033, the assets in the Social Security Trust Fund are projected to be depleted, and incoming payroll taxes will only fund about 80% of scheduled benefits.
At that point, kicking the can down the road will no longer be an option.
The basic facts have been familiar for years to anyone paying attention. When Social Security began in 1940, there were about 159 workers paying into the system for every person collecting benefits. Today, the worker-to-recipient ratio has fallen to about 2.7.
The first recipients paid little to nothing into the system before collecting benefits. Despite what you may read (or post) on social media, Social Security was designed as a pay-as-you-go entitlement program – an intergenerational transfer where current workers supported retirees. For years, the system generated surpluses. But instead of preserving those surpluses for the growing retiree population, politicians repeatedly approved increasingly generous benefits for the nation’s fastest growing segment of voters: Baby Boomers.
Congress is about to lose the luxury of kicking the can down the road. Within the next several years, politicians will be forced to confront decades of deferred maintenance on this massive financial infrastructure. Without reform, scheduled benefits are expected to exceed available funding by roughly $3.6 trillion over the next decade.
The potential solutions aren’t complicated; they are simply politically difficult. Lawmakers could raise payroll taxes, reduce benefits, increase the retirement age to reflect longer life expectancies, introduce means-testing for wealthier recipients, or pursue some combination of these measures. Any of these steps could have been implemented years ago. Instead, decades of delay have allowed the problem to grow into something massive and nearly incomprehensible in scale.
My guess is that some of the simpletons we send to Washington assume they can avoid dealing with this shortfall the same way they avoid dealing with everything else: by borrowing more money. But Social Security is not another congressman’s pet Learing Center or aircraft carrier project.
The present value of the unfunded future Social Security obligation is estimated at roughly $25 trillion. Any politician who believes we can borrow or have the Federal Reserve create that much additional money needs to remember that the inflation problems of 2022 were prompted by the creation of only $4.5 trillion in “free money.” Imagine the inflation that would result from five times that much quantitative easing used to fund Social Security payments.
This problem can only be solved by smart people willing to think beyond talking points, make extremely difficult decisions, and focus on the next 60 years, not merely the next election.
David Moon is president of Moon Capital Management. A version of this piece originally appeared in the USA TODAY NETWORK.