Congressional Failure: Ignoring the Social Security crisis despite expert warnings

More than three decades ago, in 1991, Social Security’s trustees first called for action to address the long-term finances of the federal government’s largest spending program, most workers’ largest tax expense, and the greatest income source for most retirees.

In 2004, Andrew G. Biggs, an expert from the Social Security Administration, issued a policy brief outlining the dire consequences of a “No-Action” scenario regarding Social Security but in the two decades since that report, Congress has done nothing to avert the predicted disaster.

Despite this clear and urgent warning, Congress has failed to take meaningful action to address the impending crisis that threatens to leave millions of Americans at risk of poverty and financial instability.

Biggs’ 2004 brief highlighted the fact that if no action were taken to strengthen Social Security, the trust funds supporting retirement benefits would be exhausted, leading to significant benefit reductions starting in 2039.

Trustees of the Social Security trust funds have since projected that the date of insolvency will arrive in 2033, six years earlier than believed when Biggs’ brief predicted devastating consequences, with the poverty rate doubling among Social Security beneficiaries aged 64 to 78.

This poverty would affect not only current retirees but also future generations, particularly those who rely heavily on Social Security as their primary source of income.

One of the key points raised in the 2004 policy brief was the disproportionate impact on vulnerable populations. Lower-income individuals, women, and minorities would bear the brunt of the benefit cuts, pushing many into poverty and increasing reliance on means-tested benefits like Supplemental Security Income (SSI).

More recently, Yale Law School professor Natasha Sarin asserted that, “Any cuts would be devastating. Before Social Security’s inception, more than half of elderly Americans lived in poverty; today, that number has fallen to about 10 percent, largely because of Social Security providing a major income boost for most seniors.”

“An across-the-board benefit cut would fall hardest on those populations who rely on Social Security most,” said Sarin. “It would be especially unfair to older low- and middle-class retirees who are dependent on Social Security benefits and who have automatically paid into the program what they otherwise would have saved themselves.”

Despite these alarming projections and the potential for widespread hardship, Congress has continuously failed to enact meaningful reforms to secure the long-term sustainability of Social Security.

“Since then, Congress and various presidential administrations have accomplished precisely nothing to make the Social Security program fiscally sustainable and more responsive to 21st-century Americans’ needs. Today, Social Security faces a long-term funding shortfall approaching $18 trillion, and the program’s combined trust funds are projected to run out in the early 2030s.”

Instead of addressing the issue head-on and finding bipartisan solutions, lawmakers have engaged in political gridlock and short-term fixes that only delay the inevitable crisis.

The failure of Congress to act reflects a broader trend of neglecting critical policy issues in favor of partisan bickering and short-term political gains. Social Security is not a partisan issue; it is a fundamental safety net that millions of Americans rely on for their livelihoods.

“Ignoring expert warnings and allowing the trust funds to be depleted without a plan in place is a dereliction of duty on the part of elected officials,” said Lisa McCormick, a New Jersey Democrat who has challenged members of the political establishment who are failing to address the looming crisis.

“The time for action is now,” said McCormick. “Congress must set aside partisan differences and work together to implement sustainable reforms that ensure the long-term solvency of Social Security. The future financial security of millions of Americans depends on it, and the consequences of continued inaction are simply too severe to ignore.”

Federal Insurance Contributions Act (FICA) taxes are the primary source of revenues for Social Security, and are the largest component of taxes that are commonly referred to as payroll taxes. Among the changes in the law that McCormick has called for is the elimination of the cap on income subject to FICA, the payroll tax that funds Social Security and Medicare.

The limit maximum annual earnings subject to Social Security taxes is referred to as the Social Security tax cap. For 2024, that maximum taxable amount is set at $168,600.

“By simply requiring upper-income Americans to pay the same tax rate as middle-class families, Social Security’s benefits could be expanded, and its funding would remain in balance for decades beyond the longest projections,” says McCormick, who advocates a plan that would have the wealthy pay the same tax rate as the 94% of American working middle-class families who make less than $168,600 a year.

“Americans could add $475 billion in revenue to the Social Security trust fund each year by making everyone with income over $170,000 –the rich– pay the same tax rate as everyone with income up to $169,999 –you,” said McCormick, who earned four of ten votes cast in the 2018 Democratic primary election against US Senator Bob Menendez.

McCormick cited the salary of one National Basketball Association player to shed light on the flaws in the current system.

“LeBron James earns a staggering $40 million to play 82 games each year in the NBA, but because of the cap his FICA tax rate is only 0.021 percent,” said McCormick. “LeBron is done paying into Social Security during the first quarter of the first game. For the rest of that game, the next 81 games, right through baseball, football & even hockey season, he doesn’t pay another dime.”

“If LeBron James contributed to Social Security at the same rate as everyone else, he and other wealthy Americans could avert a looming crisis that would force a 25 percent reduction in monthly benefits and double the poverty rate among Social Security beneficiaries,” said McCormick. “Congress should amend the Internal Revenue Code to eliminate the cap on income that is subject to employment and self-employment taxes used to fund social security benefits.”

In their 2005 report, the Social Security Trustees projected that the combined OASDI trust funds would be exhausted in 2041. The latest report says Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2033, but at that time, the fund’s reserves will become depleted and income will be sufficient to pay only 77 percent of scheduled benefits.

Increased expenditures due to a high cost of living adjustment in the wake of the inflation spike and other factors could abbreviate the time before the trust funds are depleted but in less than ten years, Social Security is going to fail without congressional action.