J.D. Vance On Social Security Reform
By: Andrew Biggs (Forbes)
Have you felt the earth move yet? If the editors of Forbes feel the need to publish a nuanced revision of long standing angst over entitlements then we really have entered a new era.
S E E D E D C O N T E N T
I'd meant to write about J.D. Vance's views on Social Security following his June 13 interview with the New York Times, but with Vance being named as Donald Trump's running mate now seems to be the time to get it done.
Vance and Trump share a distaste for fiscal conservatives' views on entitlement reform, in particular of reducing the growth of Social Security benefits to address the program's nearly $25 trillion funding gap. I disagree with them, but it's not really a philosophical disagreement. Moreover, as Vance's statements on Social Security show, it's not really even a disagreement about the factors that affect Social Security's finances.
Rather, it's a disagreement on how much a given factor affects Social Security's funding. In short, it's about knowing how the federal government's largest program really works. I don't want to single Vance out; he's a thoughtful guy and as a Senator has a lot of other things to worry about. But Vance, like many conservative thought leaders, isn't very focused on the nuts-and-bolts of how a program like Social Security works. But he should be. Progressives know a lot more about federal programs, to their benefit.
In talking to Ross Douthat of the Times, Vance outlines his thoughts on how to fix Social Security: "Take those seven million prime-age men not in the labor force. Those people are supported, very often, by public resources. You shift millions of those men from not working to working; you increase wages across the board; you increase tariffs; and I think that you buy yourself a whole hell of a lot more than the nine or 10 years that the actuaries say that we have. You get more revenue, yes, from tariffs, but from more people being in the labor force, from higher productivity growth, from higher wages, from transitioning young people who are not working into the work force."
So, policies that increase employment among Americans - tariffs and so on in the Trump/Vance view, but it really could be any policy - would mean more people working and paying into Social Security. All of that is true.
What's not true is that those things "buy yourself a whole hell of a lot more than the nine or 10 years that the actuaries say that we have." The Social Security's actuaries don't model precisely what Vance is discussing. But the actuaries do estimate the effects of real wages growing by 1.74% annually instead of the baseline assumption of 1.14%, which is itself higher than the 0.95% rate the U.S. has seen since 1960. In other words, that's a much faster growing economy.
And that dramatically higher rate of real wage growth extends the life of the combined Social Security trust funds by only one year, from 2035 to 2036, and reduces the long-term funding gap by around one-third. And even that likely overstates the benefits of Vance's own policy, which would essentially be a one-time increase in the U.S. labor force participation rate, not dramatically higher economic growth for the next 75 years.
Vance also underestimates the ability of households to prepare for without ever-increasing Social Security benefits. He says: "I just think the financial problems here are downstream of much deeper problems. One way of understanding the Social Security problem is, old people can't work, young people can, babies can't. So people at a certain age support the babies and the old people. And typically in our society, that's people between the ages of 18 and 65. If the argument here is we have to cut Social Security, then what you're effectively saying is we just have to privatize what is currently a public problem of who pays for the older generation. And I don't know why people think that you solve many problems by taking a bunch of elderly people and saying, 'You're on your own.'"
Vance is right that you don't solve many problems by telling poor Americans they're on their own, since Social Security was invented precisely to protect low-income citizens. But you get a lot if you start telling middle- and high-income Americans, who already will be the richest seniors in the history of the world, to save a bit more on their own and depend a bit less on the government. Higher saving by upper-income households doesn't just reduce their dependence on Social Security, but adds to the stock of capital available to build factories, research new technologies, and so on.
Consider a high-income couple, each earning the $168,600 maximum wage subject to Social Security taxes. If they retired today, together they'll receive more than $96,000 in annual benefits. And those numbers are growing: by 2050, a maximum-wage couple will receive over $130,000 (in today's dollars). That's far, far more than any safety net program needs to provide.
If that high-flying couple lived in Canada, the total they would receive from the north-of-the-border version of Social Security is around $26,000. If they lived in the UK they'd get less. If they lived in Australia, they'd probably get zero since that country's old age pension benefit is means-tested.
And guess what? Those countries survive. Their seniors aren't starving in the streets. They just save more for retirement on their own. Arguing that Social Security should focus more on being a strong safety net than a pension plan for middle and high-income seniors is fundamentally a conservative view, in that it directs government resources where they are truly needed but doesn't substitute government largess for what individuals and households could, should and would provide for themselves.
Scaling back Social Security benefits needn't be done overnight. Mostly, we're talking about restricting the growth of benefits, not putting the program on a chopping block. It's really not hard to construct a Social Security program that provides very effective social insurance at an affordable cost. It's getting people to understand that that's the tough part.
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Donald Trump seems to be forcing Republicans to change their tune. And the new verse ain't the same as the last. And it looks like Trump has doubled down by picking J.D. Vance.
Not even Joe Biden can stop the future.
I wonder why they just don't increase the contribution by worker and employer by half or whole percentage point?
And remove the wage cap on what is taxable. Not bothering to tax any income above the $168,800 limit seems to be a great gift for those who's income exceeds that amount, but they really won't miss that income if the cap was removed.
It's funny, this topic comes up every so often. Just last year I put out a list of changes that I could support and the majority of responses were against any changes including "don't change my social security" despite the fact that most of us are up there in age and I did include that anybody within 20 years of hitting that full retirement age would not see any changes to their calculus. Only those 44 and younger would see any changes. But the second someone starts to talk about changes to Social Security people get up in arms.
Interesting that this article doesn’t even touch on the SS impact of mass deportation of laborers who pay into SS but have no rights to take from it.
The amount they contribute to SS is probably a lot less than what they get from taxpayer funded government benefits, both Federal and State.
That’s like saying I’ll see your reality and raise you a probably. My statement is fact.
Let's fact check that talking point: