Because much of the political dialogue recently has focused on terrorism, foreign affairs, and immigration, it’s easy to overlook many other long-term challenges Congress and the next president must address. One of these—arguably the most daunting of all—is America’s burgeoning entitlement system. It’s a ticking fiscal time bomb given the great numbers of retiring Baby Boomers, many of whom will rely on Social Security payments to make ends meet.
Understandably, the solvency of entitlement programs, and specifically Social Security, are a key focus of many older voters. What is surprising, however, is how few younger voters are paying attention.
This is a massive mistake. The latest estimate from the non-partisan Congressional Budget Office (CBO) estimates the Social Security Old Age and Survivor Insurance (OASI) fund will be exhausted by 2030. Empty. Exhausted. Kaput. In less than 15 years.
Once this fund is depleted, it will force OASI to cut benefits for current retirees by paying out only 71 percent of promised benefits. With the trust fund dried up thanks to structural deficiencies and Washington’s decades-long habit of siphoning away payroll taxes meant for Social Security to instead pay for other things, Social Security will truly become a pay-as-you-go program.
With such a grim outlook, it’s no wonder more than 50 percent of millennial voters don’t believe Social Security will available when they are ready to retire. What many don’t also know is that these unfunded liabilities are a massive drag on the economy, meaning they’re partly to blame for the tight job market and slow wage growth that are making adult life really difficult for millennials (and many blue-collar voters). Despite this reality, reforming entitlements falls low on the priority list of millennials and most political leaders.
Bernie Sanders Plans to Make It Worse
Given this lack of interest, perhaps it comes as no surprise that calls to reform Social Security and protect it for future generations have been few and far between recently. In fact the only transformative proposal for Social Security has come from Vermont senator and self-described socialist Bernie Sanders. It doesn’t exactly qualify as “reform” so much as doubling down on a broken system.
Sanders, long a proponent of expanding the welfare state, has suggested not only keeping current benefits but substantially expanding them for all beneficiaries. To fund his plan, Sanders proposes to remove the current cap on payroll taxes, dramatically expanding the tax burden of many Americans to pour even more money into this unsustainable and slowly collapsing program. If millennials think jobs are hard to find and wages are low now, just wait until these taxes on work kick in.
Although this change seems minor at first blush, the eye-popping cost of Sanders’ radical proposal would ring up over a trillion dollars over 10 years. Worse, even without expanding the benefits as Sanders wants, his massive tax hike would do little to solve the underlying flaws in Social Security.
Sanders and others’ refusal to recognize the looming Social Security crisis not only threatens the existence of the program, it is also represents a raw deal for younger Americans, who are Sanders’ most vocal supporters. According to the OASDI Trustees Report, for example, a worker putting his first payment into Social Security in 2015 should expect to lose 4 percent of his career wages.
Younger workers don’t need a degree in finance to know that’s a bad deal. Even so, 8 out of 10 participants in the Iowa Democratic caucus younger than 30 supported Sanders despite the fact they would bear the brunt of his unrealistic and expensive proposal.
Young People Deserve Fairer Policies
Policy makers need to provide an alternative to Sanders’ harmful and unrealistic plan. Bold reforms such as providing younger workers with personalized savings accounts would not only protect current and soon-to-be retirees, but allow for younger workers to see greater returns on their investments, help modernize America’s retirement security system to make it more responsive to the realities of our new economy, and meet the needs of today’s workers and tomorrow’s retirees.
Chile, for example, allowed workers to opt into personal savings accounts in 1981. Since then, the average return for Chilean workers has been 9.23 percent above inflation. That’s drastically better than the 4 percent loss projected for younger American workers under Social Security.
For too long, Social Security has been sold to the American people as a personal retirement account when it’s actually a redistribution from current workers to current retirees, an intergenerational wealth transfer from people with lower incomes and few assets to those with more assets and higher net worth. It’s time politicians on both sides of the aisle acknowledge that this is an unsustainable arrangement, one that is becoming more unmanageable by the day thanks to the simple arithmetic of demographics.
The day of reckoning for Social Security is coming, whether we want to believe it or not, and politicians like Sanders hurt young people by denying this impending reality instead of working to protect their future.