Americans Should Be Less Complacent About Social Security

In December 2023, Gallup released the results of its latest survey of Americans’ expectations of Social Security. Gallup has been conducting these surveys in essentially similar form for many years, and their latest results qualitatively resemble previous ones. They show a slight uptick in Americans’ optimism that Social Security will make good on future benefit promises, producing Gallup’s headline finding: “Americans More Upbeat About Future Social Security Benefits.”

Unfortunately, the optimism expressed by Gallup’s respondents is at odds with the reality of Social Security’s deteriorating finances, as evidenced by the worsening actuarial shortfall documented in its trustees’ annual reports. Never before have Americans had greater reason for concern that they will not receive the benefits Social Security is promising. The reason Americans are feeling blithe about Social Security’s future is not because of its actual condition, but because elected officials and media figures avoid a subject whose harsh realities contradict their preferred political narratives.

What Americans Expect from Social Security

Gallup has asked similar questions in Social Security surveys going back several years. The survey asks whether respondents expect to receive any Social Security benefits at all, as well as whether they expect cuts in those benefits. Gallup also surveys public attitudes toward alternative methods of maintaining program solvency, including tax increases as well as benefit “cuts,” a term I place in quotation marks for reasons I will explain later. Respondents are grouped by their ages as well as by whether they have already retired. These breakdowns are useful because Americans tend to express different attitudes toward Social Security in different phases of their lives.

Across time, Americans have remained split nearly in half on their expectations from Social Security. Nearly half of current retirees expect their benefits to be cut at some point while roughly half (53%) do not. Among non-retirees, roughly half expect to be able to claim any benefits at all (50%), while roughly half do not (47%). These broad generalities, however, obscure age-specific trends. For example, among non-retirees, 66% of those over the age of 50 expect to receive benefits, whereas much lower percentages of younger Americans do.

This stark attitudinal split between older and younger workers has been present for as long as Gallup has been doing surveys. One factor in this split may be that for younger workers, Social Security benefits seem more of a distant abstraction, not yet appearing as a likely reality. There is also the simple fact that older workers’ benefit claims will be filed sooner than those of younger workers. Thus, even if one believes that Social Security will eventually go insolvent, older workers will have an earlier opportunity to file for benefits before it does.

Other attitudes have shifted somewhat over time. Pessimism about receiving scheduled Social Security benefits crested in 2010, on the heels of the financial markets crisis and subsequent recession, which shook Americans’ confidence in their economic futures. Interestingly, there has been a recent shift toward optimism among young adults (ages 18-29), who historically have tended to be the most cynical about Social Security benefit promises. 50% of these young adults believe they will receive Social Security benefits, as opposed to only 37% of Americans ages 30-49. The growing faith of today’s young adults in government promises, despite the rampant political and governmental dysfunction witnessed during their coming of age, is a phenomenon that this short piece will not attempt to analyze or explain.

Social Security’s Financial Realities

To judge the realism of these respondents’ answers requires understanding Social Security’s financial condition. It is widely known that Social Security exhibits a substantial financing shortfall, meaning that its scheduled benefit obligations well exceed the amount that can be financed from the projected resources in its trust funds (which for the most part represent payroll tax contributions previously made by participating workers). Less widely understood is just how large that financing shortfall has become, and how we are rapidly approaching the point where it will be impracticable to restore solvency while maintaining Social Security’s historical design.

Social Security is a unique creature within the federal government, operating differently from every other federal income support program. A more typical program is financed from the government’s general fund, meaning it’s funded primarily from income taxes, which not everyone pays. Benefits in such programs are usually a function of perceived need, and they bear no direct connection to one’s prior tax contributions. Because of these factors, other federal programs exhibit a persistent collision of interests between taxpayers and beneficiaries, which leads to frequent reconsiderations of benefit levels, eligibility rules, means tests, asset tests, work requirements and so forth. Americans can’t base their long-term income planning on most federal programs because they cannot know the benefits those programs will deliver next year, let alone five years hence.

Social Security is fundamentally different, by design. President Franklin D. Roosevelt, who spearheaded its creation, didn’t want a program where benefits were subject to the ever-changing whims of politicians. Accordingly, Social Security is financed by dedicated FICA (“Federal Insurance Contributions Act”) contributions taken from workers’ earnings, separate and apart from their income tax obligations. These payroll taxes are allocated to special trust funds, and benefits can be paid only from those trust funds. Individually, one’s entitlement to a benefit is a direct function of one’s previous payroll tax contributions—technically, of the amount of one’s earnings subject to the payroll tax. In the aggregate, the trust funds may not issue payments beyond the amounts these program revenues can finance.

These features of Social Security have made it a uniquely secure and reliable income source to date. Workers can fairly assert that they earned their benefits and indeed paid for them. Because of the strength of this claim, participants do not need to fear arbitrary, sudden reductions to their benefits below the amounts the trust funds can finance, in the manner they might in other programs.

However, there is a catch. This system provides Social Security with a unique political standing and gives benefits exceptional security and reliability. But it only works as long as lawmakers are willing to align its benefit payments with what workers’ contributions can actually fund. Historically, lawmakers had always done so, but in recent years, this bipartisan commitment seems to be ebbing, as evidenced by Social Security’s growing financing deficit. If and once lawmakers give up on balancing Social Security’s books altogether, then the program can no longer remain self-financing. Social Security would need to compete with every other program for financing from the general fund, its benefits would no longer be connected to workers’ prior contributions, and recipients would lose their claim to having paid for their benefits.

If lawmakers abandon the basic design features that FDR employed to engineer Social Security’s unique political status, that status will likely evaporate. Everywhere else in the federal government where some individuals pay taxes without receiving benefits, while others receive benefits they didn’t pay for, we see a repeated redrawing of the terms of exchange. Thus, when we receive annual reports on the size of Social Security’s financing shortfall, what they tell us is the size of the adjustments to benefit and tax schedules needed for Social Security to continue as a self-financing, earned-benefit program. If lawmakers don’t make those adjustments, Social Security cannot continue in its present form.

Unfortunately, due to persistent political dysfunction, we are racing toward the point where Social Security’s historical design can no longer be preserved. Whereas 25 years ago the problem could have been solved entirely with a minor tweak to the rate of automatic benefit growth, any fix from this point forward will require much more severe changes. The savings required to achieve solvency are already the equivalent of an immediate, across-the-board reduction of 25% in all future benefit claims. Because it’s unlikely lawmakers would countenance suddenly and permanently cutting the benefits of next week’s retirees (rich and poor alike) by 25%, it is far more likely that any changes affecting near-term retirees will amount to far less, perhaps as little as 1%.

Obviously, if the changes initially start out much smaller than the necessary 25%, then they must be much larger later on. Worse yet, if we wait until the early 2030s when the trust funds are on the verge of depletion, it will be far too late for a rescue: At that point, even 100% denial of all new benefit claims would not be enough to avert insolvency. (Similar illustrations of the fatal damage done by delay can be created using tax or eligibility age changes.)

What does all this mean for the realism of public attitudes about Social Security? First, these attitudes have stayed essentially the same even as the situation of Social Security has grown markedly worse. Twenty years ago, most respondents had ample reason to believe, based on historical experience, that Social Security would someday pay them benefits—even if the amounts of those benefits might be adjusted. Further, it was reasonable for most existing retirees to believe their benefits would not be cut because lawmakers had never cut benefits for previous recipients. Today, however, those risks are growing rapidly.

The longer lawmakers delay Social Security financing corrections, the more likely it becomes that the framework of self-financing solvency will be abandoned, and general revenues used to bail out the program. That would likely result in fundamentally changed political dynamics surrounding Social Security, for example potentially involving means tests, asset tests or other contingencies for benefit eligibility that have historically typified programs financed from the general government fund. This new context validates the concerns of Americans who express fears that they won’t receive any benefits at all, as well as of current retirees who fear their benefits will someday be cut.

Ironies abound. Social Security cannot be preserved in its current form unless its benefit and tax schedules are changed, while politicians who pledge not to touch Social Security would actually force the biggest changes of all. Continuity paradoxically requires changes, while inflexibility would shatter what now exists. Meanwhile, Americans are expressing more optimism about Social Security right when the substantive justifications for optimism are fading fast.

Making Sense of Policy Choices

Another recurring feature of the Gallup surveys is to question respondents as to whether they would prefer that Social Security solvency be restored by raising taxes or by “cutting” or “curbing” benefits. Whenever the question is phrased in such a way, Americans express a preference for raising taxes, a preference that increased in the latest poll. The rising preference for raising taxes may partially reflect the bigger-government tilt of young adults, combined with the large number of baby boomers on the verge of claiming benefits. However, a portion of that expressed preference has been present in every survey, and it is worth understanding why.

All Social Security survey responses tend to be extremely sensitive to the wording of questions and to background understanding of the program. For example, a previous Gallup poll showing majority opposition to proposals to “curb” benefits for middle- to high-income workers was contradicted by a contemporaneous poll finding that 59% of respondents favored slowing the rate of benefit growth for middle- to high-income workers. When proposals to moderate future benefit growth are accurately described as such, they tend to draw much more support than when proposals are described as “cutting” or “curbing” benefits. Language such as “cut” or “curb” implants the mistaken notion that such proposals would reduce benefits from current levels.

It is not widely publicized that Social Security benefits are automatically increased each year, from one retiree cohort to the next, pursuant to indexing provisions enacted in the 1970s. These automatic benefit increases were purposely established to replace a pattern of ad hoc benefit increases enacted in previous decades. Some politicians today actively promote misunderstanding of current law by inaccurately claiming that Social Security benefits have not been increased in “nearly 50 years.” When common information sources misleadingly claim that Social Security benefits are not increasing, Americans will naturally misinterpret proposals to slow future benefit growth as reductions from current levels, especially if they are described as “curbing” benefits.

The late Sen. Daniel P. Moynihan frequently referred to the phenomenon of “semantic infiltration.” He argued that one key to prevailing in a dispute is to get others to adopt leading terminology. When Americans express different policy views simply because questions are worded differently, this reveals the power of semantic infiltration in distorting public impressions.

The public information gap with respect to Social Security benefits exists for taxes as well. Expressed public receptivity to increasing Social Security taxes partially reflects beliefs that (a) it would fix more of the shortfall than it actually would, and (b) it would affect fewer taxpayers than it actually would. For example, a typical political communication asserts that requiring the “wealthiest people in America to pay into Social Security all year long” would enable the program not only to finance the current benefit schedule but to “expand benefits.” Typical of such arguments, this piece suggests that such an increase wouldn’t affect the “94%” of American workers with incomes below the current-law taxable cap. This is wrong on every count.

First, American workers’ earnings fluctuate, so even though only a small percentage of Americans have earnings above the current Social Security tax cap in any specific year, roughly one-fifth of all workers would face a tax increase at some point if the cap were raised. Second, even taxing every penny of earnings in America would only close 37% of the program’s permanent deficits, nowhere close to the amount that would eliminate the need to slow the system’s cost growth.

It is impossible to know how Americans would react once abstract phrases employed in opinion surveys give way to the realities of legislation. At some point, lawmakers would need to acknowledge that paying currently projected benefits, let alone expanded ones, would require substantial tax increases not just on the wealthy but on middle-income workers. Moreover, any benefit changes—that is, slower rates of future benefit growth—proposed to preserve solvency would probably not involve the reductions from current levels that Americans say they oppose. Current survey data cannot tell us how Americans would react to these realities once they are encountered and contrasted with prior expectations.

Expectations vs. Reality

I recently appeared on C-SPAN’s Washington Journal and heard viewers express a tendency to tune out the warnings of Social Security’s trustees, and to assume everything will somehow be worked out to preserve the program’s current design. It’s clear that continuing on the road we’re traveling—that is, toward resorting to a general revenue bailout and abandoning Social Security’s historic design—would come as a severe shock to countless Americans. We would do well to remember that other recent events in American politics have also shocked us because we did not pay sufficient attention to political figures’ self-serving maneuvers that brought them about. With Social Security, our two major parties’ national leaders are being indistinguishably irresponsible, and this does not bode well.

Americans today express opposition to “benefit cuts” of a type no elected leaders are proposing. At the same time, politicians cite public opposition as an excuse for their failure to do something quite different: namely, to simply moderate future cost growth. If this dynamic continues much longer, it will ultimately force the abandonment of Social Security’s current design, replacing it with another framework in which benefits actually would be on the chopping block each year. The tragic irony is that by resisting cuts that aren’t really cuts until it’s too late, political advocates are putting Social Security participants at risk of exactly the type of benefit cuts they most oppose and fear.