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Here’s How to Save Social Security—if Democrats Have the Stones to Do It

It’s true—our entitlement programs face bankruptcy. The Republicans’ ideas are nonsense. Here’s what the Democrats should say.

Alex Wong/Getty Images

Republican officeholders keep saying they don’t want to cut Social Security and Medicare, something even a 64 percent majority of Republican voters oppose. But that doesn’t make it true. President Joe Biden says he doesn’t want to raise Social Security taxes on people earning less than $400,000. But that doesn’t make it smart.

Social Security and Medicare really are going broke. This was entirely foreseen, owing to the demographic bubble known as the Baby Boom. The Old Age and Survivors Insurance trust fund, or OASI, which is what most people mean when they say “Social Security,” will lack sufficient funds to cover full pension benefits starting in 2034. The Hospital Insurance Trust Fund, or H.I., which is what most people mean when they say “Medicare,” will lack sufficient funds to cover full hospital benefits starting even earlier, in 2028. (That’s what the Social Security Administration says. The Congressional Budget Office’s projections are slightly more pessimistic.)

None of this is cause for panic. As the economist Herbert Stein wisely observed in 1989, “If something cannot go on forever, it will stop.” Changes will be made to keep Social Security and Medicare, which together constitute about one-third of the federal budget, from going bankrupt. These changes will consist either of benefit cuts, tax increases, or both.

Whatever the solution turns out to be, it won’t likely be executed in any way that pisses off a significant proportion of the elderly people who draw benefits from the plan. That won’t happen because the elderly vote is way too important. The American electorate skews old, thanks to Baby Boom bloat and the familiar phenomenon that the older you get the likelier you’ll vote. In 2018, for example, the median age of the midterm voter—not the eligible midterm voter but the midterm voter who actually roused themself to cast a ballot—was 53. We don’t have good data yet on the 2022 midterms, but Phil Keisling, chairman of the National Vote at Home Institute, figures 54 to be a safe guess. In the 2022 primaries, where, Keisling reminded me, “80 if not 90 percent of all races for state legislature, Congress, etc.” got decided, the median voter age was 62. Even as the press touts growing voter participation by younger voters, the median voting age keeps getting older. As I noted four years ago, these demographics go a long way toward explaining how America became a gerontocracy.

Republicans have more to lose than Democrats from proposing benefit cuts to Social Security and Medicare. That’s because elderly voters tend to favor Republican candidates. In the 2022 midterms, voters over age 65 broke for Republican House candidates 55–43 percent. That’s a wider margin than in the 2020 presidential election, when over-65s favored Trump over Biden 52–47 percent. Trump had endeared himself to elderly voters in 2016 by promising not to cut Medicare or Social Security; over-65s that year went for Trump 53–45 percent. Trump’s slippage four years later may have resulted from his foolish campaign against mail-in-balloting; in 2020, the only age group that ended up casting the majority of its ballots by mail was voters over 65. Alternatively, maybe some elderly voters were simply, like the rest of the country, tired of Trump’s antics.

The point is that the majority of elderly voters these days vote Republican. That explains why House Speaker Kevin McCarthy has taken Social Security and Medicare off the table as congressional Republicans demand spending cuts in exchange for raising the debt ceiling.

And yet Republican politicians persist in wanting to cut Social Security and Medicare. They can’t help themselves! A House Republican Study Committee report for the current fiscal year called for raising the age of Medicare eligibility from 65 to 67 and raising the Social Security retirement age to 69. A “Commitment to America” that House Republicans campaigned on last fall says Republicans intend to “save and strengthen Social Security and Medicare” without saying how. Former Republican House Speaker Paul Ryan of Wisconsin, who yearned to take an ax to these programs when he was in office, last week said it was a mistake to take Social Security and Medicare off the table in the debt-ceiling talks, and Mike Pence, who’s running for president, says cuts to Medicare and Social Security should be “on the table for the long term.”

The Republican poster child for cutting Social Security and Medicare is Senator Rick Scott of Florida, who until January was chairman of the Senate Republicans’ campaign committee. Scott last year proposed, in the Senate GOP’s campaign blueprint document, to sunset every federal program every five years, including Social Security and Medicare. Senate Republican Leader Mitch McConnell immediately disavowed it. But Scott stood by his plan. Then he stood by it again after Republicans failed to win back a Senate majority in November. Then he stood by it a third time after President Joe Biden tore into it last month in his State of the Union address.

Scott gave a little ground after Biden taunted him in early February about the plan, by name, in his home state of Florida (“so outrageous that you might not even believe it”). OK, fine, Scott said, we’ll require a two-thirds vote to cut Social Security or Medicare. But Scott still insisted Congress would take that vote. By now Scott’s stubbornness had acquired an almost cinematic magnificence, like Paul Newman defying Strother Martin in Cool Hand Luke. But one week later Scott broke, exempting Social Security and Medicare from his sunset scheme. Still, who can doubt that, at least figuratively, Scott crossed his fingers behind his back?

Most of the ways Republicans have weighed cutting Social Security and Medicare would be bad policy in addition to bad politics. Certainly, cutting benefits across the board would be disastrous. The average annual OASI benefit is about $21,000, not much higher than the poverty line for a family of two ($19,720). Cutting health benefits for Medicare recipients would be even worse.

What Republicans mostly talk about is raising the age cutoff for Social Security and Medicare. But while it’s certainly true that people live longer than they used to, and remain in better health, the frame of reference for advocates of this idea is the professional class, to which most Americans don’t belong. The average retirement age has risen two years during the past two decades, but it’s still only 61—four years before you become eligible for Medicare, one year before you become eligible for OASI, and nine years before you become eligible for the maximum OASI pension (which you can’t get if you retire earlier). You hear a lot about the aging workforce, but less than 20 percent of all people aged 65 or older still work or seek work. Employers don’t particularly want them.

The only plausible option for cutting Social Security benefits is to taper off benefits for people with high incomes. If you stopped paying Social Security to people earning in excess of $140,000, that would eliminate more than 10 percent of the shortfall. Republicans are reluctant to do that because people earning in excess of $140,000 are a prized Republican constituency. In the midterms, people making $50,000 or more (52 percent) voted Republican about as much as people making less than $50,000 voted Democratic (53 percent). This Republican advantage gets bigger as you set the threshold higher.

Democrats don’t want to apply a means test to Social Security because as soon as it ceased to be universal, Republicans would attack it as a handout to loafers (by which they would mean Blacks, even though most welfare benefits go to whites). In my younger days I scoffed at this fear. But after witnessing Republicans play this vicious game again and again, even after President Bill Clinton eviscerated cash payments to the poor, I came to recognize the fear is well-founded. So however practical means-testing Social Security might look on a spreadsheet, it’s not the solution. Even on paper, it isn’t all that practical because cutting off beneficiaries earning more than $140,000 would still leave 90 percent of the shortfall unaddressed.

A better way to save Social Security? It’s simple: Eliminate the regressive $160,200 cap on payroll taxes.

The payroll tax, known formally as the Federal Insurance Contributions Act, or FICA, tax, is regressive in two ways. It’s a flat tax of about 15 percent, divided evenly between yourself and your employer. (Really, though, you pay both halves because your employer takes payroll tax into account when calculating your salary.) There are additional Medicare charges for high earners, but setting these aside, this is a 15 percent tax on the very first dollar earned. When you work, you pay a 15 percent payroll tax, whether your annual income is $150 or $1,500 or $15,000 or $150,000. That’s regressive.

The other way the payroll tax is regressive is that it’s capped, which is insane. The government quite reasonably sets bottom tax thresholds to exempt the poor, but whoever heard of setting top tax thresholds to exempt the rich? The Social Security Administration, that’s who. There’s a complicated justification for this based on Social Security and Medicare pretending to be some sort of national Christmas Club rather than government benefit programs. That made more sense when the program was founded in 1935 than it does today because incomes were more equal then (it was the Depression!) and only about 54 percent of American males (the workforce back then was overwhelmingly male) were projected at age 21 to live long enough to collect benefits. Today incomes are more unequal, by far, than at any time since the peacetime income tax was created in 1913, and the average American male is projected at age 21 to live to 81. That means most people will take out of Social Security and Medicare far more than they ever put in. So, yeah, they’re government benefit programs.

Democrats have been talking about removing the Social Security cap for decades. Barack Obama proposed it when he was still a senator, but a bipartisan deficit panel he created as president, chaired by former Republican Senator Alan Simpson and former Clinton chief of staff Erskine Bowles, adopted in 2010 the more timid alternative of raising the cap. Had the Simpson-Bowles policy been adopted, today the FICA cap would be not $160,000 but around $190,000. That would simply shift upward the outrage of well-off people not paying payroll tax, even as it failed to cover the shortfall. (Simpson and Bowles also proposed various benefit cuts.)

The cap should be eliminated entirely, because any cap is regressive. The Lakers pay LeBron James, the highest-paid NBA player in history, $44.5 million. Why do we exempt $44.3 million of that from the FICA tax? Were LeBron to protest that a 15 percent surtax on 100 percent of his income would be unreasonable, we could politely explain to him that that injustice is already visited on 94 percent of his fellow Americans.

The real problem in imposing a 15 percent FICA tax on all income isn’t that LeBron would pay more. It’s that everybody else would pay the same rate as LeBron. Even without a $160,000 or $190,000 cap, a flat-rate tax is regressive. The best solution is therefore to eliminate the payroll tax entirely and increase income tax rates, which are already progressive and should be made more so, to cover costs for Social Security and Medicare. Would many taxpayers scream? Yes. But it would be very popular with Mitt Romney’s famous 47 percent, which is that slice of the population that doesn’t pay income tax but still has to pay FICA tax. (These days this non-income-tax-paying cohort is closer to 40 percent.) It would also be very popular with the three-quarters of all working Americans who pay more payroll tax than they do income tax.

If scrapping the payroll tax is too much of a political challenge, then second best would be to keep the payroll tax and eliminate the cap. That would more than cover the Social Security and Medicare shortfall. Unfortunately, Democrats have a phobia about taxing the moderately rich. Candidate Joe Biden proposed leaving the cap where it is, then reimposing it for incomes over $400,000. There is no logical reason to do this other than Biden’s pledge not to raise taxes on anybody earning less than $400,000. And anyway, the Urban Institute calculates Biden’s proposal would keep Social Security solvent only five years longer than current projections.

Senator Bernie Sanders met with Biden late last month to urge Biden to reimpose the Social Security tax not at $400,000 but at $250,000, as proposed in Sanders’s own bill. That would, according to the Social Security Administration, keep Social Security fully solvent for the next 75 years. Perhaps that’s why Sanders fixed his threshold there (though I suspect Sanders also had in mind President Barack Obama’s pledge not to raise taxes on anybody earning less than $250,000).

We may have to reconcile ourselves to a rescue for Medicare and Social Security that, weirdly, suspends the payroll tax either for the income range of $160,000–$250,000 or for the income range of $160,000–$400,000 (even though the latter gets us only to 2040). Future historians will pinpoint this income range as the demographic that Democrats most fear. It’s where the professional class dwells, and professionals are the only wealth class that votes Democratic. Republicans could perhaps support this by telling themselves they’re raising taxes only on a bunch of tree-hugging, “critical race theory”–loving liberals.

But sooner or later we’re going to have to raise taxes on affluent professionals too, and not just to cover the Social Security and Medicare shortfalls. Government costs money, and if you earn $160,000, I’m sorry to tell you, you inhabit the top 10 percent in the income distribution, and very nearly the top 5 percent. You may never crack the top 1 percent, but you absolutely can’t deny that, compared to most other Americans, you’re as rich as Croesus.