One of the most worrisome points raised by Charles Blahous in his Economics 21 article on Social Security’s fiscal future is that the low-hanging fruit reform options, like adjusting future benefit growth downwards, is no longer an option:
Had across-the-board price-indexing been enacted in 2005, it could have kept Social Security fully solvent, left those over 55 untouched, and generated additional funds to provide for faster benefit growth on the low-income end. Enacted last year, however, such across-the-board price-indexing would no longer be enough; costs would be substantially higher and the trust funds would be depleted in 2040 unless further measures were taken. And if re-scored under 2012 assumptions, this proposal would fare still worse.
The efficacy of tax-increase solutions is also fading with delay. Advocates on the left sometimes argue to increase the amount of Social Security wages subject to the payroll tax. The most extreme version of this proposal would be to raise the amount of wages subject to the full 12.4% payroll tax — $110,100 today – up to infinity. Yet even this drastic measure would now fail to keep Social Security in long-term balance as well.
We are thus approaching the point where each side would have difficulty balancing Social Security finances even if it could dictate the solution — and rapidly passing the point where a compromise solution remains reasonably likely.
And lest you think I’ve gone mad, I mean “low-hanging fruit” only in relative terms. Adjusting future benefit growth downwards, even in highly progressive fashion, has always been a contentious idea, for obvious reasons. The weak economic recovery hasn’t helped matters. An increase in the Social Security payroll tax is particularly unpalatable in an era of sluggish household income growth. The likely end result, as Blahous explains in his conclusion, is that the Social Security program will increasingly be funded by general revenue.