The Morning Dispatch: The Looming Social Security Crisis

Happy Friday! The story about McDonalds’ McFlurry machines we mentioned yesterday goes even deeper than we imagined.

Thanks to several readers for writing in and sending us this deep dive into the situation, which is legitimately pretty sketchy!

Quick Hits: Today’s Top Stories

• At least 46 people have died in New York, New Jersey, Pennsylvania, Connecticut, and Maryland after Ida—no longer a hurricane but still a powerful storm—caused flash floods across the Northeast.

• A new real-world study from Israeli researchers found that, 12 days after receiving a third dose of Pfizer’s COVID-19 vaccine, adults’ relative risk of a confirmed COVID-19 infection decreased more than 11-fold, and their relative risk of severe illness decreased more than 10-fold.

• Alexanda Amon Kotey, a British national and Islamic State member, pleaded guilty on Thursday to all charges brought against him for his participation in a hostage-taking scheme in Syria that led to the deaths of four American journalists and humanitarian aid workers: James Foley, Kayla Mueller, Steven Sotloff, and Peter Kassig. “The justice, fairness, and humanity that this defendant received in the United States stand in stark contrast to the cruelty, inhumanity, and indiscriminate violence touted by the terrorist organization he espoused,” acting U.S. Attorney for the Eastern District of Virginia Raj Parekh said in a statement.

• Georgia Attorney General Chris Carr announced Thursday that former District Attorney Jackie Johnson had been indicted on a felony charge for her role in hindering the murder investigation of Ahmaud Arbery last year. Johnson showed “favor and affection” to one of the men later charged in Arbery’s murder and failed to “treat Ahmaud Arbery and his family fairly and with dignity,” the indictment alleges.

• Schools in Nigeria’s Zamfara State were ordered to close in recent days after armed bandits abducted at least 73 students from a state-run high school. Mass kidnappings have become somewhat common in the region, with children typically being released by their captors after families make ransom payments.

• Judge Robert Drain approved Purdue Pharma’s bankruptcy settlement plan on Wednesday that will require the company’s owners, members of the Sackler family, to forfeit their equity in the company and pay approximately $4.5 billion in damages in installments over the next decade. As part of the deal, the Sacklers will receive lifetime immunity from civil liability over their role in perpetuating the American opioid epidemic. Several states plan to appeal the decision.

• Initial jobless claims decreased by 14,000 week-over-week to 340,000 last week, the Labor Department reported on Thursday, the lowest level since the onset of the pandemic in March 2020. The Bureau of Labor Statistics is scheduled to release August’s jobs numbers later this morning.

• Walmart, the United States’ largest retailer, announced Thursday it is raising its minimum hourly wage from $11 to $12, increasing pay for approximately 565,000 of its 1.6 million American employees. The company’s average wage for hourly workers is now $16.40 per hour.

The Coming Insolvency of Social Security

An annual government report published earlier this week estimated that, due to the COVID-19 pandemic, Social Security’s funding will run out in 2033—one year earlier than previously projected. Medicare’s life expectancy remained unchanged from last year, when it was forecast to be depleted by 2026.

From an actuarial perspective, the pandemic cut both ways regarding the solvency of the two entitlement programs, from which between 60 and 70 million people benefit. On the one hand, the recession put millions out of work and dramatically cut the amount of revenue generated by the payroll tax—the programs’ primary source of funding. Conversely, the excess deaths wrought by the virus skewed toward older Americans eligible for the benefits.

Ultimately, though, the former consideration was more pronounced, leading the trustees of the funds—Treasury Secretary Janet Yellen, Labor Secretary Marty Walsh, Health and Human Services Secretary Xavier Becerra, and Acting Social Security Commissioner Kilolo Kijakazi—to adjust their estimates. 

The Old-Age and Survivors Insurance Trust Fund, which disburses Social Security funds, will be able to operate as normal until 2033, at which point continuing tax revenue would be able to cover only 76 percent of promised benefits. The Hospital Insurance Trust Fund, which disburses Medicare Part A funds, will be able to operate as normal until 2026, at which point continuing tax revenue would be able to cover only 91 percent of promised benefits.

The pandemic may have accelerated these trends—at least with regards to Social Security—but both programs have faced questions about their long-term viability for years, particularly as the population has gotten older, with a smaller pool of younger workers to shoulder the burden of a mass of retiring baby boomers.

“Overall it is noteworthy that the Social Security insolvency year continues to move up. However, the Social Security and Medicare drain on our public finances is so much bigger than the trustee figures even indicate,” Brian Riedl, a senior fellow at the Manhattan Institute, told TheDispatch. “The reality is, Social Security is already running permanent annual deficits, and those deficits will have to be made up by current borrowing and current taxes. The idea that we have 13 years where [the program] is just fine before it goes belly-up assumes that the trust fund actually has any money.”

As the late Charles Krauthammer explained in a 2011 Washington Post column, the idea that your FICA tax revenue is “squirreled away in some lockbox in West Virginia where it’s kept until you and your contemporaries retire” is a fiction.

“Most goes out immediately to pay current retirees, and the rest (say, $100) goes to the U.S. Treasury—and is spent. On roads, bridges, national defense, public television, whatever—spent, gone,” he wrote. “In return for that $100, the Treasury sends the Social Security Administration a piece of paper that says: IOU $100. There are countless such pieces of paper in the lockbox. They are called ‘special issue’ bonds. Special they are: They are worthless.”

Those IOUs, as the Clinton administration’s Office of Management and Budget wrote in 2000, are not “real economic assets,” but rather “claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.”

Between 1983—the year then-President Ronald Reagan signed a series of Alan Greenspan-led reforms into law—and 2009, Social Security racked up a nearly $3 trillion surplus by generating more revenue than it paid out in benefits. But that money was not stored away for a rainy day—the federal government borrowed and spent it, issuing the bonds as collateral.

Last year, according to the latest trustee report, Social Security’s total income exceeded total cost by $11 billion, but only because of interest on trust fund asset reserves. Without that accounting trick, the program ran a $65 billion deficit—and that’s more in line with what to expect in the future. “The Trustees project that total cost will exceed total income (including interest) beginning in 2021 and in all years thereafter,” the report states.

“People fixate on the idea of a date,” Michael Tanner, senior fellow at the Cato Institute, told The Dispatch. “What really counts is cash flow. Cash flow to [the programs] is negative and growing worse—not some magic date at which the trust fund has a dollar or doesn’t have a dollar. The trust fund is just an accounting measure of how much the federal government owes Social Security.”

Entitlement reform was a staple of Republican politics for years: Former President George W. Bush tried—and failed—to get Congress to pass legislation partially privatizing Social Security during his second term; Mitt Romney’s 2012 campaign platform called for slowly increasing the retirement age for future generations of seniors and lowering benefits’ growth rate for those with higher incomes. “With just those two simple steps, and no change in benefits for those at or near retirement, America can guarantee the preservation of the Social Security system for the foreseeable future,” his website read. The average life expectancy when Social Security was first passed for 65-year-olds in 1935 was 61; today, benefits fully kick in at age 67 despite life expectancy having risen to 77.

Then-candidate Donald Trump threw all that out the window in 2016, promising voters he would “do everything within [his] power not to touch Social Security, to leave it the way it is.” This likely contributed to his victory: An overwhelming majority of voters—74 percent in a 2019 Pew survey—do not think there should be any cuts to the program in the future, even as 84 percent believe funds are likely to run out before they retire.

The result? A bipartisan acceptance that entitlement reform is the third rail in American politics. When Trump ad-libbed in a January 2020 interview that he would take a look at the issue “at some point,” he backtracked almost immediately. “Democrats are going to destroy your Social Security,” Trump tweeted. “I have totally left it alone, as promised, and will save it!”

The Biden administration’s rhetoric surrounding this week’s report doesn’t make it sound like it’s champing at the bit to pursue any serious reforms, either. “Having strong Social Security and Medicare programs is essential in order to ensure a secure retirement for all Americans, especially for our most vulnerable populations,” Yellen said in a statement announcing the findings. “The Biden-Harris Administration is committed to safeguarding these programs and ensuring they continue to deliver economic security and health care to older Americans.”

So what happens when these cliffs are reached in 2026 and 2033? Probably just more debt. “At this point, there is no congressional interest in fixing Medicare and Social Security trust funds,” Riedl said. “There’s no chance Congress is going to allow benefits to be cut. … Congress will have general revenues bail it out.”

Flooding From Ida Kills Dozens

Since we last wrote about Hurricane Ida’s landfall in Louisiana on Sunday, the storm’s remnants have swept across the nation, bringing torrential rains and strong winds to cities and towns across the Northeast. As of Thursday night, local authorities have recorded at least 46 deaths, many from urban areas.

“We are in a whole new world now. Let’s be blunt about it. We saw a horrifying storm last night, unlike anything we have seen before,” New York City mayor Bill de Blasio said yesterday. “And this is a reality we have to face. And unfortunately, the price paid by some New Yorkers was horrible and tragic.”

Images of swamped subways, submerged vehicles, and flooded high rises on the Eastern seaboard brought renewed attention to natural disaster vulnerabilities in cities. New York City, Philadelphia, and even Washington, D.C., felt Ida’s impact in the days following its initial landfall.

Central Park set a new record for the most rainfall in a single hour between 8:51 and 9:51 p.m. Wednesday, and New York City reported more rain in a single day than it typically does during the entire month of September. New Jersey reported 23 deaths and New York reported 13, eight of which occurred in Queens basements.

“The United States National Weather Service issued a flood emergency in Manhattan, Brooklyn, Queens, the Bronx, Staten Island, and parts of Long Island last night. This is the first time that such a warning has ever been issued for the city,” President Biden said Thursday. “People were trapped in the subways, but the heroic men and women of the New York Fire Department rescued all of them.”

The southern states hit by Ida are also in recovery mode after the hurricane left hundreds of thousands without power and cell service and stalled the region’s oil production. 

The American Red Cross is in the process of opening 50 shelters across the Gulf Coast, as many face permanent or temporary displacement from their homes due to storm damage. The Federal Emergency Management Agency (FEMA) has extended $77 million in aid to states affected by Ida and deployed crews to assess damage and assist those in need.

“My message to the people of the Gulf Coast, who I’m going to visit tomorrow: We are here for you,” Biden said, encouraging those affected to visit disasterassistance.gov. “And we’re making sure the response and recovery is equitable so that those hit hardest get the resources they need and are not left behind.”

Louisiana’s entire congressional delegation is now advocating for a bill to provide emergency supplemental appropriations to assist in hurricane and tropical storm recovery.

“Hurricane Ida moved slowly through Louisiana causing catastrophic wind damage and flooding in numerous parishes and leaving nearly 1,000,000 people statewide without electricity, which experts say it will take weeks to restore,” the lawmakers wrote. “At this time, many communities remain without access to drinking water, food, gasoline, and basic needs, while temperatures remain in excess of 100 degrees.”

“The full extent of Louisiana’s damages have not yet been determined and will likely not be fully known until after immediate matters of public safety are addressed,” they added. “Further, Hurricane Ida is not the only disaster to strike Louisiana in the past year. In fact, a record breaking five named storms—Cristóbal, Marco, Laura, Delta, and Zeta—hammered Louisiana within the past year resulting in dozens of lives lost and billions of dollars in damages.”

Worth Your Time

• As the number of new COVID-19 cases driven by the Delta variant has exploded, so, too, have the number of articles mocking and shaming vaccine-hesitant people who have died of the disease. “Whom are these stories for?” Elizabeth Bruenig asks in a piece for The Atlantic. “If persuasion is the target, then the aim seems off—a general problem in our democracy, where persuasion is a key method of self-governance but something we’re less and less amenable to. In that sense, the strange case of vaccine persuasion is just another entry in the annals of our disillusionment with our own liberal democracy. One receives the distinct impression from today’s discursive environment that persuasion in its traditional democratic form—wherein a great deal of value is placed upon shrewd and moving rhetoric that assumes listeners’ basic goodwill—is a useless venture, and that lower forms—insults, scolding, intra-group memeing, the dirty persuasion of disinformation campaigns—are all that’s left. Maybe those things are useless too, one gathers, but at least they’re fun and cathartic.”

• As the State Department’s acting director for Iraq political affairs during President George W. Bush’s second term, Thomas Warrick helped design the Special Immigrant Visa program. Now a senior fellow at the Atlantic Council, he believes the SIV process urgently needs an update if we are to honor our commitments in Afghanistan. “The U.S. government needs now, at last, to commit the people and resources necessary to clear the number of SIV and refugee cases by a reasonable but ambitious target,” Warrick argues in the Washington Post. “Neither security nor American values need to be compromised. Those in Congress who criticized the Biden administration for slowness to respond need to step up immediately to vote [for] money for overtime and for bringing back retired homeland security, intelligence, and military personnel to clear this backlog.”

Something Positive

Hey, how about some good news? According to Kenya’s recent wildlife census, the country’s crackdown on poaching is working. The elephant population has grown 12 percent over the past seven years, and there “has been a notable increase of all the three species of giraffe found in Kenya” since 2011.

“Efforts to increase penalties on crimes related to threatened species appear to be bearing fruits,” the report concludes. “Such efforts should be sustained for long term conservation and management of this species.”

Presented Without Comment

Also Presented Without Comment

Toeing the Company Line

• The Advisory Opinions podcast is built for days like yesterday. Get off Twitter, tune out the noise, and let David and Sarah explain what is actually going on with the Texas heartbeat law—and what it does (and doesn’t) mean for the likelihood of Roe v. Wade being overturned.

• If you’re short on time and can’t listen to a 65-minute podcast, David’s French Press from yesterday (🔒) is a worthy substitute. “Here’s the shortest possible description of what happened,” he writes. “In a 5-4 unsigned opinion the Supreme Court refused to block a highly unusual Texas law that bans abortions when there is a ‘detectable fetal heartbeat.’ But that short description doesn’t even begin to describe what happened yesterday. The highly unusual law has led to a highly unusual legal result, and that means that a host of people are just deeply, deeply confused.”

• Atlantic staff writer Graeme Wood made his first-ever Remnant appearance on Thursday, joining Jonah for a conversation about the future of the Taliban, the psychology of extremists, and the future craziness of American politics.

• On the site today, Weifeng Zhong explains that our secrecy-driven model for intelligence collection is behind the times, and in particular behind China. He calls for more of a focus on open-source information.

Let Us Know

As Sarah alluded to on this week’s Dispatch Podcast, we have our staff fantasy football draft later today. Which Dispatch-er do you have the most faith in to put together a winning team? And any deep sleepers you have on your radar this season?

Reporting by Declan Garvey (@declanpgarvey), Andrew Egger (@EggerDC), Charlotte Lawson (@charlotteUVA), Ryan Brown (@RyanP_Brown), Harvest Prude (@HarvestPrude), and Steve Hayes (@stephenfhayes).