The Social Security Impasse

Senators known for bipartisan dealmaking don’t often accuse Cabinet secretaries of blatant dishonesty during congressional hearings, but it happened Thursday. “That’s a lie,” GOP Sen. Bill Cassidy told Treasury Secretary Janet Yellen after she said President Joe Biden “stands ready to work with Congress” to keep Social Security solvent.

Cassidy walked back his accusation moments later—but the interaction underscores the difficulty of pursuing entitlement reform in today’s political environment. A bipartisan group of senators is seeking meetings with Biden on Social Security, Cassidy said—to no avail thus far.

“We have not heard anything on our request,” he said during Thursday’s Senate Finance Committee hearing. “And we have made multiple requests to meet with the president.”

The bipartisan working group, an informal cohort, includes Sens. Cassidy, Angus King, Susan Collins, Kyrsten Sinema, Mike Rounds, Tim Kaine, John Cornyn, and Mitt Romney. Members of the group have earned a reputation of being workhorses for bipartisan initiatives in the past, including negotiating the $1 trillion infrastructure bill passed in 2021.

Senior White House staffers have held one meeting with Cassidy and King and five more with their staffs, but the president has not been directly involved.

“We’ve engaged in good faith discussions to understand Senator Cassidy’s proposals,” a White House spokesperson said.

Congressional Republicans continue to criticize Biden’s recent budget proposal, which purports to extend the solvency of the Medicare trust fund by “at least 25 years” by closing a tax loophole and raising taxes on the wealthy. The proposal doesn’t directly mention the Social Security Old-Age & Survivors Insurance Trust Fund (OASI) trust fund.

The unmentioned entity, which holds money from payroll taxes and Treasury bonds, is projected to run out around 2034 or 2035, according to the Social Security Board of Trustees’ 2022 annual report. And last month, the nonpartisan Congressional Budget Office estimated it could run out by 2032. When that happens, the trust fund will only be able to cover 75-80 percent of benefits—meaning retirees theoretically could see benefit cuts of up to 25 percent. To cover the gap, Congress would likely need to significantly hike taxes or simply borrow more money—both of which are far from ideal, politically and economically.

Different members of the bipartisan group have been involved in various Social Security reform efforts, including the proposed TRUST Act—which would task bipartisan, bicameral “rescue committees” to draft legislation to address the solvency of several endangered trust funds—and a recently introduced bill that would change the language the Social Security Administration uses to encourage Americans to wait longer to claim their retirement benefits.

Cassidy has touted another idea: a stock market investment fund, separate from the trust fund, that could unlock more money to cover retirees’ benefit payments. Investments in stocks could potentially grow much faster than the low-interest bonds Social Security has traditionally relied on.

But assuming high returns from stocks is a gamble. “The substance of it is just a big gimmick that the stock market is free money,” said Andrew Biggs, an American Enterprise Institute senior fellow, former principal deputy commissioner of the Social Security Administration, and a Biden nominee for the Social Security Advisory Board. Under Cassidy’s plan, payroll taxes would increase automatically if the fund failed to generate an 8 percent return, Semafor previously reported. Plus, the government investing in too large a share of the stock market with borrowed money—and perhaps making less-efficient capital allocation decisions than the private sector—could dampen economic growth.

Still, Biggs is encouraged by the bipartisan group’s efforts: “I applaud any member of Congress who puts up a Social Security reform plan, even if I don’t like the plan itself, because all the incentives are to duck the issue.”

The bipartisan working group has been lauded for operating in good faith, but political pressure from both sides of the aisle to avoid being associated with tax hikes or benefit cuts means politicians will most likely continue to kick Social Security solvency down the road. 

“The ball is going to be in the court of the people who are going to be up for reelection when the trust fund depletes,” said Niskanen Center policy analyst Robert Orr.

So far that seems to be true. Neither Biden nor prominent Republicans have shown much interest in tackling the issue.

At the State of the Union address in February, Biden slammed Republicans for wanting to cut Social Security and has repeatedly attacked a 2022 policy agenda by Sen. Rick Scott that proposes sunsetting federal programs every five years with congressional reauthorization. Other Senate Republicans, including Senate Minority Leader Mitch McConnell, have also criticized Scott’s plan.

House Speaker Kevin McCarthy of California has said that cuts to Social Security and Medicare are “off the table” when it comes to debt ceiling negotiations. Some House bills target Social Security reform, though none seem likely to advance in the current environment.

The 2023 budget from the Republican Study Committee, the House GOP’s largest caucus with over 150 members, proposes several ways to make Social Security solvent, including reducing benefits, gradually raising the eligibility age for the program, and slowing the rate that benefits grow for certain workers over time.

Meanwhile, more than 200 Democrats signed onto the Social Security 2100 Act last year, which would raise payroll taxes while expanding Social Security benefits for five years.

“The problem is, you know, 90 percent of Republicans and 90 percent of Democrats endorsing plans completely different from each other,” Biggs said. “We’re in an environment where nobody will compromise a bit.”