You’ve probably heard that Social Security is going broke. Given that, it’s logical to ask, “Why can’t the government just print more money to fix this problem?”
That might sound like the simple and obvious solution. But there are good reasons why printing money to fix this problem isn’t the outcome that any of us want. Doing so could lead to some serious unintended consequences.
The Real Problem with Social Security
Before we get into that, I want to look closer at what we see as the current problem: Social Security is going broke. We hear that (or some version of that warning) a lot.
But is it entirely accurate?
Well, not quite. What’s actually going on is that the Social Security trust fund is running out of money.
The trust fund is the equivalent of the Social Security Administration’s savings account. That doesn’t necessarily mean Social Security is going broke, but it’s still a big problem that we need to address.
The Social Security Is Burning Through Their Cash Cushion
What’s the difference between saying the trust fund is running out of money, and Social Security is going broke? It can sound a bit like six one way and a half-dozen the other, but there are some important distinctions.
Imagine you make $3,000 per month from your job and you spend $4,000 per month. That sounds like overspending… but in your situation, your previous job that you held for many years paid you $6,000 a month, and you’ve always spent the same $4,000 per month.
When you had the higher-paying job, you put the full $2,000 extra into a savings account. That gave you a bit of a cash cushion, which you used when you switched to the lower-paying job but kept the same level of spending.
That can work for a little while. But eventually, your savings account is going to start running low. Once that money that you previously saved is gone, there won’t be enough income coming in to pay for all of your monthly obligations. You’re going to have to find a way to cut expenses.
That’s nearly the exact situation the Social Security Administration is finding themselves in right now. For several years, there was more coming in than was going out. This excess was deposited into the trust fund.
Now, due to a combination of factors, there isn’t enough coming in to meet the monthly obligations and the Social Security Administration is going to start pulling out of their savings account, or trust fund, to pay benefits.
The balance of the trust fund is only expected to last until 2033. At that point, there just won’t be enough money coming in to cover the expenses. Unless there are changes to the system, there’ll be no choice except to cut benefits. There simply won’t be anywhere to get the extra money from.
Why We Can’t Just Print More Money to Solve the Social Security Trust Fund Problem
This leads to the very valid question of…”well, won’t the Federal government just print the money that they need? After all, they do it for lots of other programs that aren’t as important as Social Security!”
Easier said than done. The Social Security system was designed with the intention of being a fully self-supporting system that was funded through workers and their employer’s contributions. It was specifically set up to avoid accessing the general funds of the Treasury, which is funded by Federal taxes.
It was never intended for the Federal government to fund the system, only to administer it. This was very important to President Roosevelt when the Social Security Act was signed into law. He said, “If I have anything to say about it, it will always be contributed, both on the part of the employer and the employee, on a sound actuarial basis. It means no money out of the Treasury.”
Being self-funded is the only line that separates Social Security from the other government assistance programs.
All that being said, we still have a problem: without reform in Congress, there will be cuts to Social Security within 10-15 years. This is not a “maybe.”
The Antideficiency Act prohibits government spending in excess of available funds, so once the trust funds run out, the Social Security Administration will not have legal authority to pay full Social Security benefits.
This law is actually why we have shutdowns of the Federal government; various agencies can’t just take money out of the country’s wallet without permission from Congress.
So while the government may technically have the ability to print money at its leisure, the Social Security Administration doesn’t have the same power. This is why that without reform, there will either be an across-the-board cut to benefits around 2033, orCongress will have to bail out Social Security with an infusion of cash from the Treasury.
What’s the Best Way to Save Social Security?
Frankly, I don’t think the chance of an across-the-board cut to Social Security benefits is very high at all (unless Congress waits until they are right up against the deadline of 2033 and start playing political games).
My hope is that Congress passes new legislation that reforms how the program works before the trust funds are set to run out of money. And, I hope this happens far before we find ourselves up against the deadline – because if we do, there would be an increased likelihood of Congress bailing out Social Security by printing money.
This may still sound like a better solution than an across-the-board cut, but only for a little while. If Congress has to move money from the Treasury to ensure Social Security benefits can continue to be paid, the founding principles and foundation of Social Security would instantly go away.
Social Security would no longer be a program for the people, funded directly by the people. It would become, at least in part, a welfare program for retirees. That would also cause the program to go on-budget as a government expense instead of the self-funded program that it is now.
The problem there is that once the program becomes a government expense, Social Security becomes an easy target for lawmakers to attack as just another welfare program that increases the national debt. And, to be fair, they’d be right.
However Social Security is fixed, it cannot become another welfare program. We need to see meaningful reforms that happen soon. The good news is that I do think lawmakers understand the need for change that will prevent either an abrupt cut to benefits or a cash infusion from the treasury.
When those reforms start to work their way through, I’ll be here to keep you informed.