Many Republican members of Congress couldn’t hold back frustrated looks or shouts of protest at Tuesday’s State of the Union address when President Joe Biden accused party members of wanting to cut the nation’s retirement insurance programs.
But the room’s unruly mood was quickly replaced by the sound of a standing bipartisan ovation in defense of Social Security and Medicare.
“All right. We got unanimity,” Biden said.
Though there may be “unanimity” surrounding the preservation of Social Security and Medicare — with leaders of both parties declaring entitlement reform “off the table” in ongoing debt ceiling negotiations — discussions on how to save these programs from their impending collapse generate anything but unanimity.
As Social Security and Medicare head toward possible insolvency over the next decade, leading economic and political analysts say Republicans are struggling to resolve a tension between reducing the programs’ ballooning costs and avoiding the electorate’s wrath, while Democrats puzzle over how to expand retirement programs without fundamentally changing their character.
While fights over discretionary spending, like the Biden administration’s $1.9 trillion COVID-19 relief package and $1.7 trillion omnibus spending bill, are what make the headlines, it’s the growing costs of big, existing programs that fuel the vast majority of government spending, according to James Capretta, a senior fellow and Milton Friedman Chair at the American Enterprise Institute.
“Our bigger problem really is the big spending programs, the entitlements,” Capretta said of Social Security and Medicare, which together make up nearly a third of the federal budget.
Social Security and Medicare have become fixtures of American life, with over 60 million beneficiaries apiece and a large majority of the country wanting to see the programs continue. But as the number of people eligible for benefits quickly outpaces the revenue brought in by payroll taxes, the trust funds responsible for payments are set to dry up.
In the 2022 Social Security and Medicare trust funds report, it was projected that reserve funds for Social Security benefits will be depleted by 2035, at which time tax revenue will only be able to support 80% of scheduled benefits. And Medicare Part A, which insures hospital costs for seniors, is projected to come up short even earlier, in 2028, with tax revenue keeping up with 90% of scheduled benefits.
Both programs began running a deficit over a decade ago, with costs exceeding revenue by billions of dollars every year. In 2021, Medicare Part A cost $53.7 billion more than associated payroll taxes collected, and Social Security’s deficit was more than twice that amount, contributing to a cumulative deficit of $800 billion, according to the American Action Forum, a center-right think tank.
Capretta points to projections from the Congressional Budget Office which show that the debt held by the American people will increase from its current level of 100% of gross domestic product — the highest level since WWII — to 185% of the country’s economic output by 2043 if Social Security and Medicare trust funds hollow out and payments are made instead with borrowed money.
Such a staggering amount of debt would decrease the government’s capacity to fund national security and would produce a stagnant economy, Capretta said. “It’s a problem that is eating away at things and increasing the risks of future problems, weakening the country and making the country less capable of responding to all the other things that it might need to respond to over time.”
While it’s unlikely, according to Capretta, that anything done this year as part of Republicans’ efforts to tie spending cuts to a debt ceiling increase could have an impact on making Social Security and Medicare solvent, the contention surrounding the issue reveals what political obstacles both parties will have to overcome to avoid the looming economic iceberg.
Limited options and big consequences
For Republicans, there is no easy answer.
According to Larry Sabato, founder and director of the University of Virginia Center for Politics, reducing Social Security and Medicare benefits is the last thing that Republicans want to do — despite Biden’s repeated claims to the contrary.
“(Republicans are) certainly not going to reduce the benefits. There’s no way they would do that. They would not survive many races in competitive districts and states,” Sabato said.
Biden’s attack was partially based on a policy proposal that was released last year by Florida Republican Sen. Rick Scott, Sabato said. Scott’s proposal suggested that all federal programs be subject to a vote in five years. It was quickly rejected by Republican leadership who recognized that supporting such a policy would be electoral suicide.
On Twitter, in the days following the State of the Union address, Biden also called out Wisconsin GOP Sen. Ron. Johnson for his comment about Social Security being a “Ponzi scheme” and Utah Republican Sen. Mike Lee for saying he wanted to “phase out” the program.
However, Lee was quick to publish a statement on Twitter qualifying his past comments on Social Security and later linked to a speech Biden made as a senator in 1995 where Biden said he was willing to freeze all government programs to balance the budget, including Social Security and Medicare.
In the past, Biden showed a willingness to make changes to Social Security, voting “Yes” on a 1983 bill that raised the age of eligibility for full retirement benefits from 65 to 67 to prevent the program’s trust funds from defaulting.
While Republicans are unlikely to attempt to reduce Social Security and Medicare benefits, Sabato said, the only alternatives are ideologically unpalatable for conservatives: Either approve a substantial tax increase or pour gasoline on an already exploding debt. And assuming Republicans take a principled stance on reckless borrowing, that leaves them in something of a political bind.
“Republicans are saying, ‘No, we’re not going to raise taxes, but we’re also not going to cut spending.’ That’s completely not workable,” Capretta said.
However, he said, the Democratic position isn’t so simple either.
Currently, the Social Security benefits received by an individual are calculated based on their income below a payroll tax cut off of about $160,000 a year, with greater benefits being divvied out to those with higher taxable incomes.
But a recent Democratic proposal to increase Social Security benefits by applying the payroll tax to earnings above $400,000 (in keeping with Biden’s promise not to increase taxes for anyone making under $400,000 a year) would only postpone insolvency for a handful of years and would fundamentally change the contributory character of Social Security, Capretta said.
Though hard to envision, the only solution Capretta foresees is bipartisan. “You’d have to mix some tax increases with some benefit adjustments.”
A debt ceiling compromise?
While it’s unclear what significant spending cuts could come out of a Republican-led debt ceiling negotiation — where entitlement reform is untouchable and defense spending is still a priority — it’s possible some small steps will be taken in the direction of avoiding a fiscal cliff.
House Budget Republicans released a list Wednesday of “wasteful, inefficient and unnecessary federal spending” that can be eliminated to reduce the deficit. It includes reclaiming $100 billion in COVID-19 aid, reinstating welfare work requirements and capping Obamacare subsidies.
And last month, Utah Republican Sen. Mitt Romney said his TRUST Act might be passed as part of the debt ceiling negotiations. Romney’s bill, originally introduced in 2020, would create congressional committees tasked with developing legislation to restore solvency to Social Security and Medicare trust funds.
But a bipartisan effort to address the crisis brewing beneath the nation’s retirement benefit programs might be too much to ask in the near term, according to Sabato.
“2028 and 2035 are the political definitions of forever,” he said. “Politicians with two year terms or even six year terms, that’s not what they’re focusing on.”
While Sabato said it’s worth remaining optimistic, he’s not getting his hopes up. “I’m not going to bet any money that they will reach a compromise, let’s put it that way.”