In its budget last month, the White House claimed that “the Administration is committed to protecting and strengthening Social Security.” But the recently released annual report from that program’s trustees portrays a different story.
The report demonstrates how the slower economic growth and higher inflation of the Biden years have undermined Social Security’s foundation and accelerated its insolvency. If ever a document illustrated the failures of the Biden administration’s economic policies, and how those failures will harm seniors, this report does it.
Slower Growth in Perpetuity
The annual report, compiled by the Social Security actuary and approved by the program’s trustees — all of them appointed by Biden — projected that insolvency for the retirement trust fund would occur in 2033, one year earlier than estimated in last year’s report. The biggest cause for that change? A lowering of estimates for future GDP and productivity growth “by about three percent by 2026 and for all years thereafter.”
The trustees’ move came “in response to recent economic developments, including higher-than-expected inflation rates and lower-than-expected output growth.” In other words, members of Biden’s own administration admitted that the economy has permanently shifted into a lower gear on his watch.
High inflation and slow growth also resulted in negative real wages, which declined at a 3.43 percent rate in 2022. This scenario, whereby inflation grows faster than wages, places significant pressure on the Social Security program. Because its annual cost-of-living adjustment (COLA) is linked to the increase in consumer prices, a wage base growing more slowly than price inflation means Social Security spending will grow faster than the payroll taxes that fund the program.
Return of Carter-Era Stagflation?
Many Washington policymakers know that, four decades ago this spring, Congress and the Reagan administration agreed on a package of reforms that extended Social Security’s solvency. What most do not know is that the 1983 changes came only six years after Congress passed legislation that had been intended to make Social Security solvent for at least a quarter-century.
The stagflation of the Jimmy Carter years undermined the effect of the 1977 Social Security changes. Four straight years of negative real wages — coupled with higher unemployment, which sparked when the Federal Reserve under then-Chairman Paul Volcker crashed the economy to fight inflation — led to a solvency crisis in the early 1980s. As a result, the 1983 package that Congress approved included a “stabilizer” provision that, should Social Security trust fund balances run low, limits the annual COLA to the lesser of the growth in wages or the growth in prices.
The scenario of the early 1980s, whereby stagnant growth and high prices combine to threaten Social Security, could recur if fiscal and monetary policy do not control inflation. The program’s actuaries project a slight increase in inflation-adjusted wages this year, followed by more robust wage growth in 2024 and beyond. But the most recent data from the Bureau of Labor Statistics show negative real weekly earnings in February, and for eight of the last 12 months. If this trend persists, insolvency could arrive far sooner than the 10-year timeframe envisioned by the trustees.
Déjà Vu?
The White House may not want to admit it, but in 1975 then-Sen. Biden introduced legislation that would sunset every federal program — including Social Security and Medicare — within four years. If a few more years of slow growth and high inflation jeopardize Social Security’s solvency, Biden may finally achieve his long-lost wish.