Charles Blahous - Is Social Security running out of time?

Social Security is now projected to become insolvent within a few years, potentially reducing benefits for millions of Americans. Will Congress act before retirees feel the impact?

Charles Blahous is a former Social Security Trustee, Senior Research Strategist at the Mercatus Center at George Mason University, and an expert on entitlement policy. He joins the show to discuss the program's financial outlook, the risk of benefit cuts, and the options lawmakers may face to keep Social Security solvent.

Transcript

SPEAKER_00 0:11

Welcome back to the Lawrence Larson show. So Social Security is now projected to run short of money by 2032, and that's coming right up. Your check could be cut by $500 a month. Is the Congress going to act or just simply let it happen? Charles Brahaus joins us now, who's a former Social Security Trustee, senior research scientist at the Mercatus Center at George Mason University, and the author of Social Security. Ms. Blahaus, welcome to the program. Thanks for having me. So how bad I mean, the situation really is that bad right now, isn't it?

SPEAKER_01 0:48

It's bad. It's bad. There's no question about it. It shouldn't be a surprise. This is a problem that has been metastasizing for decades now. It would have been relatively painless to deal with it a couple of decades ago with a slight tweak to some of the formulas, but uh lawmakers have not acted. The problem has continued to grow. And with each passing year, it's getting uh much more difficult to solve.

SPEAKER_00 1:11

And by the way, for my audience who might be wondering, well, what tweaks is he talking about? Am I right uh that those tweaks would have been, say, adjusting the rate at which uh payments go up uh and and the kind of uh uh inflation that we factor those on? Bingo.

SPEAKER_01 1:28

Yes, exactly right. Uh basically in the 1970s, they they enacted an automatic mechanism for increasing benefits every year. Uh they had a consultant panel that they asked about, and the consultant panel said, do not do this formula because it will not be stable over time. Lawmakers did it anyway. And uh had they uh had they gone with a different formula, one that just went up with, say, the consumer price index every year, uh, we wouldn't be in the soup that we're in now. But they chose one that goes with the national average wage index, which tends to run about one percent faster than price inflation on average uh each year over time. And if you have something that's growing 1% in real terms per capita over time, that's a lot of growth over the decades.

SPEAKER_00 2:10

It's not quite as good as that doubling penny uh that that doubles every day for 30 days. But but it but it it will put you in a bad situation over a period of time. So what are the best ways to fix this? And and I guess I've wondered about this and I've I've asked people about it. I'm curious what your solution is. What what would you suggest we do now that we're only six years out?

SPEAKER_01 2:33

Well, unfortunately, what I suggest we do now is pretty unpleasant because we have uh we don't have many good options left, right? At one time we could have just repegged the rate of growth, problem would have been solved. Uh but now, uh, for example, some of the numbers in the report are really frightening. If you if you you need savings that is uh equivalent to a 30% across the board benefit cut in every uh future benefit claim starting tomorrow. Um it may be unrealistic to think that that lawmakers will be willing to cut benefits the equivalent of 30% across the board. And if that's the case, then you're gonna have to put uh more tax revenues in the system and you'll have to adjust uh eligibility ages as well. It's very hard at this stage of the game to get uh over the finish line without doing a little of everything.

SPEAKER_00 3:19

You know, it's funny. Uh I'm talking to Charles Blauhaus, who is a former Social Security trustee. I went back and I looked at the first year that I actually paid into Social Security uh as a wage earner. I was I was 14 years old and I was working at a at a furniture store, and I wasn't I think I was making a buck fifteen an hour. But that's when I paid my first Social Security in. At the time, despite everything that idiot Al Gore has ever said about lock boxes and that sort of thing, they moved the goalposts on me because after I had paid into the system, then they said, Oh, by the way, you don't finish at 65, you finish at uh I think it's almost 67, uh 66 in 10 months or something like that. And I thought, well, if they're moving the goalposts, they could have justified that a long time ago based on mortality tables, couldn't they?

SPEAKER_01 4:08

Right, exactly. And and uh I think moving the goalposts, that's an excellent way to put it because right now we have a uh a set of benefit processes and a set of tax collections that are completely out of alignment with each other, right? So you have to move move the goalposts on somebody, right? Because the the current, you know, the the current numbers just don't add up. So you're gonna have to uh gore somebody's ox, not to use a pun uh based on your reference just now. But um, yeah, uh it's someone is gonna feel like something has been taken away from them. And uh it's it's either do that or uh abandon the basic structure we have now.

SPEAKER_00 4:42

Well, and it and it is something taken away. I mean, I've said it to people, would you be okay if your bank said you have a 30-year mortgage and when you get to about year 29, you think I'm almost done? And then the bank calls you up and says, by the way, we've now made it a 33-year mortgage, and you say, I didn't agree to that. Doesn't matter, we changed the rules, you have to pay three more years on your mortgage before it's paid off. Um that I don't I don't think most people would accept that. Are they going to accept if the system says we're going to means test? And is there any realistic way to do means testing and say, hey, you were very responsible. You saved money, you paid off a house. You don't need Social Security as much, so we're going to reduce your benefit because at that point you're turning it into a welfare pro uh system, aren't you?

SPEAKER_01 5:28

Yeah, there's there's there's multiple facets to that question. They're all very uh important. Um one, and I think your first point that sort of the closer you are to the finish line, uh the more upset you will be over changes in the rules, right? I mean, I think if you are 20, 23, 24, you haven't played by the old rules as long. And so I think the supposition is okay, we can change the rules for you uh proportionally more. And we have to be a little bit careful about that, because under the current system, it just so happens that Gen Xers and baby boomers per capita are actually taking more out of the system than they're putting in, whereas people coming along later are already putting more into the system than they're getting out, even under the current regime. Yep. So you can't really hold the boomers and gen Xers completely harmless, otherwise, people coming afterwards are just gonna get 80, 85 cents on the dollar. So you have to be a little bit careful with that. And then the other question, oh yes, mean testing, this is very important. Um, I think, right, if if you do it the wrong way, uh you destroy a lot of saving, uh a lot of other retirement saving, you penalize saving, and we we already have a problem with insufficient saving in our economy. Uh now, it is possible to take the current benefit formula uh and and make it more progressive as a function of your earnings, right? Right now, the formula is already tilted to favor people in the low-income end, and you could just increase that tilt a little bit. But to actually means test, it's a similar goal, but it's actually using a different mechanism. It's actually starting to penalize you for the saving you do outside of Social Security. And that might be uh a somewhat more problematic stuff.

SPEAKER_00 7:05

You know, the other one we don't really have time to talk about, but Charles, one of the things that occurs to me is the time value of money. You bank money in your 20s and it sits there for the next 40 years, it makes a lot of money. And yet we treat people the same, whether you did your, I think it's 11 years that you have to do to qualify for Social Security, whether you did that in your 20s or did it in the last 10 years of your working career, it counts the same under Social Security, which it would not under any other kind of retirement savings program. Charles, thank you very much. That's Charles Blauhouse, who's a former Social Security trustee and the author most recently of Social Security. Thanks so much, and I appreciate the time. By the way, picture this. You're at work, your phone rings, it's your kid's number, and your phone's voice or your kid's voice is panic. He says he's been in an accident, needs money wired right now. Now, you would move heaven and earth to respond to that, wouldn't you? That's exactly what the scammers count on. And here's the play criminals buy your phone number and your family details from data brokers. Then they grab three seconds of your kid's voice off, say, a random video. They clone it with AI and they make the call. You can't stop them from cloning a voice. But what you can do is make sure they never get your phone number in the first place. That's done with the help of Incogni. I've had Incogni working for me for the last six months. It's a trusted website that puts the data brokers on notice. They can't sell your data, and it's been doing great for me. I rely on it for just that reason. It contacts hundreds of data brokers, forces them to delete your personal info, and keeps it off the net. It costs about seven bucks a month, worth every penny. Go to incogni.com slash Lars and promo code Lars. Save sixty percent. Incogni.com slash Lars.