I don’t mean to alarm anyone, but it turns out that over the next 10 years alone the “Build Back Better” spending bill before Congress is likely to cost $26,000 for each of us currently paying into Social Security—which is not only a hefty chunk of money but also more than twice what Congress is currently saying it will cost.
It’s something to bear in mind if (or when) the politicians come back in a few years’ time and say, “Gosh darnit, we’re going to have to cut your Social Security benefits because there’s no money left in the Treasury, and we just don’t know where it all went.”
It’s unusual to talk about extra federal spending and borrowing in terms of Social Security participants, but it’s perfectly logical. Social Security is desperately underfunded, maintaining benefits will involve federal taxes or borrowing, and any dollar that Congress borrows or taxes today to spend on, say, electric bike subsidies is money it can’t then spend on Social Security.
It’s all one big pool.
And for that matter, where do you think Congress finds the trillions to pay for these things anyway? From your Social Security checks, which are spent propping up the federal government (at a derisory rate of interest) instead of being invested in the productive economy like any normal pension fund.
Payroll taxes account for about one third of all federal revenues, nearly as much as personal income taxes. Or, to put it another way, the federal government gets almost as much money from the flat (borderline regressive) income tax known as FICA as it does from the official “progressive” income tax.
Here are the numbers. Right now the official estimates suggest the BBB bill will cost somewhere in the region of $2 trillion in extra spending — the estimates are still in flux — over the next 10 years.
But the influential (and nonpartisan) budget forecasting team at the University of Pennsylvania’s Wharton School says: Not so fast, pal.
The only way Congress can produce that $2 trillion figure is by claiming—a very nasty cynic might even say, “pretending”—that many of the spending plans will magically evaporate after one or a few years. The technical term for this in D.C. is a “sunset provision.” So Congress announces a brand new entitlement or spending program, which the recipients figure will be theirs forever, but when it comes to counting the costs they tell the taxpayer the same program will only last for one year.
You know how that works. As the old joke goes, few things are more permanent in this life than a temporary government program.
Try this type of accounting at a public company and you’re apt to spend an uncomfortable amount of time ensconced with your lawyers, compliance officers, and very awkward people from the Securities and Exchange Commission. But what you can get away with on the Hill of Shame in Washington is slightly different from what you can get away with on the Street of Shame in New York.
Kent Smetters, faculty director of the budget model at Wharton, confirmed these calculations to me by phone. If we assume that the spending proposals in BBB are made permanent, he says, the full cost over 10 years will be $4.55 trillion, not $2.1 trillion. (Meanwhile the tax revenues to pay for it would add up to $1.8 trillion.)
As there are 175 million of us currently paying into Social Security, this works out at $26,000 per person. (I’m excluding from these calculations the 65 million people already drawing from Social Security. Presumably many will have joined the choir invisible by the time the program hits the fiscal iceberg in a decade. And, maybe more importantly, no politician in their right mind is going to propose balancing Social Security’s books by cutting benefits for those already claiming.)
Even without the extra costs uncovered by Wharton, the national debt was already on track to hit $35 trillion, or about 107% of GDP, within a decade.
That’s about when Congress will need to start finding the extra money to save Social Security as we know it, if they are so inclined. The program’s trustees say the funding gap is currently valued at about $20 trillion—and rising.
So what’s an extra $2 trillion or so between friends?
Meanwhile, if you want to get an idea of how well our biggest pension plan is being run, consider this.
Inflation is currently running at 6.2%. So far this year, the most basic retirement portfolio you can have—60% global stocks
40% global bonds
—is up 10.5%. Your Social Security dollars? According to the trustees, they’ve earned just…1.4%.
Our pension dollars at work, folks.