As clock ticks, plenty of fodder for Social Security hearing
The U.S. House has departed for its August recess and the Senate will soon follow, but perhaps in the fall Sen. Mike Crapo, an Idaho Republican, the chair of the Senate Finance Committee will, we think, schedule a hearing on Social Security.
This seems to be prompted by a bipartisan proposal by Senators Bill Cassidy, a Louisiana Republican, and Tim Kaine, a Virginia Democrat, to create what is essentially a sovereign wealth fund to shore up Social Security.
The Social Security Trust Fund, which makes up the difference between what is being paid out and what is coming in via payroll taxes, is projected to run dry in eight years. Since Social Security cannot pay out more than it takes in by law, there would be a politically impossible reduction in benefits of 20% to 25%.
The Cassidy-Kaine proposal would work like this. The U.S. government would borrow $300 billion a year for five years to create a $1.5 trillion fund. That fund, unlike the Social Security Trust Fund that invests in Treasuries, would invest in riskier assets, just like the federal Thrift Savings Plan or the Railroad Retirement Plan.
Unlike the sovereign wealth funds from countries like Norway or Saudi Arabia that were created by windfall profits from oil, America would be compelled to borrow, raising eyebrows in financial markets about the distortion this might cause. Wouldn’t it push up interest rates?
When the Social Security Trust Fund runs dry, benefits would be maintained by general revenue but, after 75 years of (hoped for) growth, this sovereign wealth fund would pay back the Treasury the money it presumably borrowed to cover a projected $25 trillion shortfall.
Cassidy notes that economists have advocated for a combination of benefit cuts (actually a slowing of benefit growth) and tax increases to shore up the system, but Republicans don’t want to raise taxes and Democrats don’t want to reduce benefits, except, possibly, on the very wealthy, so there is a stalemate.
Other objections have been raised. This might have worked 20 years ago, investing a portion of the Social Security Trust Fund’s assets in something like an S&P Index Fund (which has grown 600% since 2002) but time has grown too short.
Though Sen. Cassidy says an independent board would oversee the investment of the assets, it is not hard to see how politics could intervene, with MAGA-types maybe blackballing companies that pursue DEI strategies and Democrats blocking, say, fossil fuel companies.
Journalists are already asking if the votes exist to pass such a bill, but they are asking the wrong person. Given the state of things in the Congress, President Trump would appear to be the one to decide if such a proposal might be allowed to advance. He seems to have a firm grip on the Republican majorities in both houses.
The president pledged in the campaign not to touch Social Security and played with the idea — rhetorically — of some sort of sovereign wealth fund to shore up the program. But then the president says a lot of things and changes his mind. He said he wouldn’t touch Medicaid.
However, there is a difference between not touching something and ensuring that a program that is relied upon by 74 million Americans remains solvent and functioning.
Perhaps tariffs will provide more revenue (as the president has suggested) until the courts rule he can’t unilaterally set tariffs. Perhaps AI will make America insanely wealthy, as some have speculated (if China does not get there first).
Or, perhaps, the members of Congress might want to try putting on their so-called “big boy pants” to try to fix Social Security — if, that is, the president will allow it.
• Keith Peterson, of Lake Barrington, served 29 years as a press and cultural officer for the United States Information Agency and Department of State. He was chief editorial writer of the Daily Herald 1984-86. His book “American Dreams: The Story of the Cyprus Fulbright Commission” is available from Amazon.com.