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mason university's mercatus center discussing a new report on the status of social security and medicare. this is an annual report from the social security and medicare board of trustees. first, remind us who those folks are, what their mission is. guest: there are six trustees. four of them are trustees by virtue of their government offices, ex officio trustees. secretary of treasury who is a managing trustee. sec. of labor, hhs, and the full security commission. normally there are also -- sadly we don't have them now -- but normally two members of the public that serve as public trustees. i did that once. the two public trustees tend to be the public face of the trustees report. is testimony in congress on the contents of the

report, it tends to be delivered by the public trustees. but the annual reports are very important, important because they basically tell lawmakers and the public the amounts of the changes that have to be made to social security if we want to continue in its current form. just by way of background, social security is a unique animal among federal programs. pretty much every other federal program, income support program, you don't know what you paid into it, you don't know when you might receive benefits, don't know what those benefits will be. it is all in one big pot and the termarr. osha security is different. when you have a job, you have separate allocations. taxes taken out of your paycheck that go to the social security trust fund. social security operates as a separate, self financing system. that is very important because social security is unique, their

benefit security derives from that structure. this goes back to the time of franklin roosevelt. he didn't want a program battling for funding each year. didn't want a program where it was continually subject to the whims of politicians as to what the benefit rules would be. he wanted something where people could say, we earned these benefits, we paid for these benefits, we funded these benefits, therefore they could depend on them. social security has delivered that. there is a catch. it only works as long as lawmakers are willing to align the programs benefit schedules with it tax se not going to do that, they are no longer willing to do that, then we cannot have this kind of self financing system. unfortunately, the program is badly out of balance now, and the trustees report are telling us that a negative changes need to be made. host: the retirement trust fund can pay 100% of benefits until eear 2033, less an0

years from now. te2033, reserves will become depleted and they can continue to pay up to 77% of benefits, but e sability insurance trust fund could pay 100% of its benefits through almost the end of its century. how concerned should congress and the public be about those projections? guest: very concerned. one point that i often am compelled to make is that even though it may sound somewhat reassuring that the program is not projected to be insolvent until the early 2030's, we have to be cautious and not rely too much on that date. by the time that date rolls around, it is too late to solve the problem. the better measure, i think, of the challenge lies in what is the size of the changes you have to make to keep the system solvent? as you noted, we have enough

revenues in those trust funds, revenues coming into payroll taxes where we could pay 77% of scheduled benefits. but remember that 77% includes people who are already receiving benefits. lawmakers are usually not willing to cut benefits to people that have been getting them for several decades. if you ask the question what do we have to do today to make the system solvent for the long run? we would have to make changes that are equivalent reducing benefits across the board by 25%. future benefit claims, 25% across-the-board. that is a huge change. lawmakers will not go onto the floor of congress tomorrow and enact a law cutting everyone's benefits by 25%. anything that we do will be much more gradual, will not be nearly as sudden, which means ultimately you have to be bigger than 25%. if you factor in a cost of delay, and say what are the size

of the changes that we have to make if we wait until the 2030's, by then the shortfall is so large, it's actually larger than the amount of savings you can generate by cutting up all benefit claims. we would never cut off all benefit claims, but it shows by then it's too late to fix the problem. it's already late in the game. we need to take action soon. we certainly cannot afford to wait another presidential term to get the job done. host: 71 million americans p month receive social security benefits. the average monthly benefit, retired worker, about $1900 a month. disabled workers, $1500 in monthly benefits. we have a special line in this segment for those 71 million americans if they want to chat with you about this program, future of social security. (202) 748-8003 is that number. otherwise, lines for emma kratz republicans, independents as usual.

what is the easiest solution here to not have that nearly 25% cut? is it raising the age of social security? is it new taxes or increased taxes? is there a magic bullet here? guest: i would say the bad news as well as the good news is you have to do a little bit of everything. that means you have to have bipartisan cooperation. you will have to have republicans and democrats both participating. neither side will get their way. if you are as far left as you can be and what it all to be tax increases, those increases are incredibly large. if you acted today, you have to raise the payroll tax from 4.6% to the equivalent of 16%. even our furthest left-leaning lawmakers do not want to change the payroll tax that much.

similarly on the right, if you want to do it by cost restraints, we are past the point where you can fix social security without additional revenuesits. you will have to do a little bit of everything. eligibility age also have to be a part of the picture. there are three main factors in the equation. one is the tax burden you carry as a worker. what is the annual income you can have in retirement. the third is the number of years over which your retirement income is stretched. his, as is happening under current law, as we get older, all of that extra life is added to the amount of time that we spend as beneficiaries, none of it at it to the time that we spend as workers. what happens over times the relationship between worker tax burden and your annual income security gets worse and worse. host: right now, people are

incentivize on not taking it right when you turn 62. is there a way to increase that incentive to get people to wait even longer? guest: great question. i will try to give a fairly short answer but there are several things i could say. the most common age of claim believe you are not remains 62. that is not going to work. when social security was first created, the generation that fought the spanish-american war, much shorter lifetimes than ours. they were not able to collect the full 65. today the common age is 62. the earliest eligibility age is definitely an issue. there are incentives, as you note, the later you claim, the higher your annual benefit gets. but that adjustment doesn't actually take account for the fact -- basically, that attempt to keep your lifetime benefits

equal no matter how long you live which doesn't account for the fact that if you stay in the workforce, as we hope they would, continue to pay payroll taxes, they are continuing to pay payroll taxes without any net change expected in their lifetime benefit. that is not a good deal for them. in my subjective opinion, we would increase both the rewards for the retirement claim as well as the offset for the early retirement claim. some other ideas have been suggested, too. in some systems abroad, he delayed credit is offered as a lump sum option. people seem to be more sensitive to the lure of getting a check for $20,000 rather than a slight adjustment to their monthly benefit. host: a viewer brought it up in our open form segment. i promise i would bring it up. he said when there are cost-of-living increases for social security, why does it go

to everyone across-the-board? why not just the people who are receiving the least amount of social security, as these are the people that need it the most? the people getting the most social security don't need an extra $100 a month. why not find cost savings that way and focus the cola to the people on the lower end? guest: there is certainly substantive merit to that thinking, which is that the actual cost of living, the cost of your consumption needs is less for you if you are a higher income person. you spend less of your income on consumption. you could create a rationale therefore for saying past a certain point, we will cap the cola amount. historically, social security has tried to embrace the virtue of simplicity, one cola for everyone, no special rules for this or that group. it wouldn't be that complex to put an annual cap on the size of the cola, so that you got the

re a lower income person but not if you are higher income. host: 30 minutes left, talking about social security, of sociae waste of this trustees report that came out. charles blahous, currently a senior research strategist at the george mason university mercatus center. always plenty of calls when we have this topic. mary is from front royal, virginia on that line for social security recipients. caller: thank you for having me. i am curious about the other side of the social security. for fica, they are able to write that off as an excise tax or something. then they receive social security as well, so it is

almost as if they are double dipping. guest: the taxation of social security contributions is complicated. i will try to make some sense out of it. the caller is right. the employer share of the contribution is tax-deductible to the employer. it is regarded as an expense of doing business. the employee share, the part taken out of drug wages, is not -- wages is not tax-deductible. in some ways that is artificial. most economists will tell you, in effect, both halves are paycheck. certainly comes out of your wages, the amount of compensation your employer can give to you. another implication here is the taxation of benefits. right now, depending on your

income in retirement, up to 85% of your social security benefit is subject to the income tax. this is a reflection of an attempt to only tax a portion of your social security benefit that hasn't already been taxed you made the fica contribution. earlier i was talking about social security trying to embrace complicity. -- simplicity. if you really want to do it accurately for each person, each person would have a different percentage rather than 85%. what happened was, when they were trying to figure out how much, they did the number of calculations and included': that 85% was a reasonable proxy for the average amount of benefit that had not already been taxed on the way in as contributions, and that is why they are taxed y recipient. doug is in florida.

caller: i saw a program on c-span here about a year or so ago where they were debating social security. i actually heard a republican say, we are not going to be able to get the rest of the world or us down to the rest of the world if we keep paying all of these benefits. why are we trying to go down to the rest of the world instead of trying to make the rest of the world come up with us? guest: i cannot speak to the nature of the comment or the thinking behind it. i will say, i think most policy experts, lawmakers, when they think of social security, they are thinking primarily of how to make sure it is financially sound. the things that have to be done to make sure social security can continue in its current form are

not things that lawmakers find pleasant to do. either raise taxes or raise eligibility ages, or reduce the growth of the benefit formula. reality is we have to do politicians don't like doing any of those things which is why it hasn't been done. unfortunately what happens, the longer you delay action, the more severe those changes have to be. if we had made legislative adjustments 30 years ago, they could have been a lot more gentle, and they would not have been felt very acutely by any cohort of beneficiaries or taxpayers. unfortunately, lawmakers have not done that, delayed a long time. the more they continue to delay, the more difficult it becomes. host: why did we decide to set a cap on how much we would tax social security? guest: historillhat is because the program is supposed to provide a floor of income production. the way the program works,

getting back tat about the ideas being an earned benefit, self financing benefit. each individual's benefit is a direct function of their earnings that are subject to the social security tax. the benefit to which you are entitled. that's a big reason why we don't think of it as welfare. i contributed to this benefit, this is the amount i contributed. the thought was beyond a certain amount, higher income people don't need more benefits. they don't need to make contributions pass that amount. there have been many proposals. my guess is that any bipartisan solution to social security's financing shortfall would probably involve an increase in the amount of income subject to the tax. that increase the amount of income subject to the tax, then equate to more osha security benefits for the person

whose wages are being taxed, or are they using that money to fund other parts of the program, and there social security monthly statements stay the same? guest: exactly the right question. not everyone asks the question, so i'm glad that you asked it. weav this earned benefit structure where your benefits are a function of your contributions. when you tax higher income people more, one of two things happen. either you pay more benefits to people that don't need it, all you have to sever that connween contributions and benefits. that is kind of crossing a rubicon in social security. once we sever that connection, we do change something fundamental about social security, where some people, as with other programs, some are paying taxes into the program and not getting anything from it, others are getting benefits that they didn't actually fund. that dynamic in other programs

has led to political collisions where you have the interest of taxpayers pitted against the interests of beneficiaries, which is why we are constantly saying, what are the eligibility means? if you sever that cnection in social security, you risk creating that type of dynamic. there is a way to get the best of both worlds. you can, at the same time as raising the caps on wages, you can go to the benefit formula and cut the accrual rate on the higher end. the benefit formula in social security is a progressive formula where the amount of your contributions accrues a benefit. it is like a set of tax brackets but in reverse. the numbers get smaller and smaller as you go up the income chain. when you have higher income, you accrue benefits at a much lower rate. if you raise the cap wages, you can cut that on the higher end,

so you don't have to sever the contribution benefit completely, but you also don't wind up losing all the savings to the system from taxing higher income people by paying benefits that you don't need. host: simplicity argument? if we were to do something terribly novel within the system, you can get away from the sympathy argument, but the benefit form is already there. this would just be a matter of changing the numbers to make it more progressive. host: houston, texas. line for democrats. joseph, good morning. caller: good morning. i will make this quick. my questionny is, how does the immigration issue help to increase the trust fund? second, is the advantage plan using the demand on the system -- easing the demand on the

system? host: i think he was talking medicare advantage. we are focusing on social security. guest: now, substantively, higher immigration tends to increase social security. immigrants pay taxes before they become beneficiaries, and they tend to be younger than the general population. you get a considerable burst of revenue when you have higher immigration. in the trustees report each year there is a sensitivity analysis which shows how program finances look with higher levels of immigration, lower levels. program do better with higher levels of immigration. i have to caution, nothing changes the progressions too much, when you are talking inflation, immigration, ■fertility, the basic contours

remain the same. we are just improving around the edges but immigration does improve the finances of social security in general. host: patty on the line for republicans, out of the steel city. good morning. caller: i have a question and comment. i am a boomer. we put a ton of money into social security. the politicians couldn't keep their sticky hands off of it. they kept on stealing our money. now they are telling us we have 't know if we can pay you the benefits. guest: a concern that many people have expressed. i think there is a legitimacy at the core of the concern, which is that, for many years, social security ran surpluses. most analysts say the effect of thatmption.

they were not saved in an economically meaningful way. but that is different from saying the money was sto taken out of social security. what has happened, every time the federal government receives that surplus money, they issued a treasury security to the trust fund. the trust fund built up a storehouse of roughly $3 trillion in treasury securities. that money is being paid back with interest. the program began to run cash shortfalls in 2010. social security' shortfalls are not because politicians stole anything, but the trust fund continues to receive all of that money represented by taxes. host: social security was set up under fdr. was there a plan for surpluses coming in? guest: another great question. until the 1980's, social security was generally run on a pay-as-youo basis.

there was an informal rule. the secretary of the treasury for fdr. there was great resistance back then to the idea of social security running surpluses. there was resistance on the left and right. the right didn't want the government controlling this massive investment pool, steering it and controlling the economy. the left didn't like it either. the left didn't like the government sitting on a big stack of cash and people could be getting benefits. the two sides reached a compromise to basically have a system operate on a pay-as-you-go basis. fdr actually wanted a pre-funded system. it was run on a pay-as-you-go basis for many decades though there was no massive surplus, until one began to accrue in the 1990's and 2000s. historically, there was not

really a plan for what to do when the government ran a massive trust fund because there was not intention to be one. host: two the peach state. social security recipients. good morning. caller: good morning. i don't have as much of a question as i do a comment. when i was 14 or 15 years old, believe it or not, watching c-span, too. i must have been a dork. [laughter] host: not at all. caller: at this time, that discussion was still going on. we are going to run out of social security in 10, 20 years. it was in the near future. at that time i didn't knowh social security was. here we are having the same discussion that we will run out of it. maybe i am being a little ignorant, but i tend not to listen to that too much anymore

because it seems like it's been going on a long time. guest: first of all, i think the cool kids what c-span, not the dorks and the nerds. host: very much with you. guest: the caller is voicing something that i think is important, and i think it is something that you find an undercurrent of even with lawmakers and policymakers, the idea that we have been through this before, social security survived before. there have been times when social security faced an insolvency projection and found a way to fix it. unfortunately, i think this has led to a little bit of complacency, precisely related to what you asked moments ago. historically we didn't have this surplus. in the 1970's, when things started to turns out,

there was not a trust fund to draw down, so the depletion was right around the corner. lawmakers had to deal with it before the annual shortfalls got too large. that morning bell went off, they acted, it was done, even if the program was just a few months away from not sending out benefit checks. i think that president has let a lot of people, including lawmakers and policy experts, to say we can do the same thing in the 2030's when the program is on the verge of completion -- depletion. unfortunately, the situation is not in any way similar to 1980's. we started running deficits in 2010, now we are drawing down the trust fund. so the gap between annual collections and benefit obligations is growi growing and growing. technically, the trust fund doesn't run out until the 20 30's, but by then, the two lines are so far apart, lawmakers cannot close it. host: so the public trustees

report says we can pay one hunter percent of benefits until 2033. u are a public trustee in 2010. what were the projection you are making in 2010, 2033? guest: very similar. they bounced around, a year this way, that way, always focused on the mid-2030's. is remarkable in this world of imprecise government forecasting, where forecast go all over the place, the trustees projections have remained markedly stable and accurate. part of that, in social security, things are marketable. when you look at medicare, health care inflation, that is more difficult to addict -- predict. social security, most of the factors are known. you know with the payroll tax is, the number of boomers, pretty much all the information you need to make a reasonably accurate projection, so the protection don't tend to move around that much.

unfortunately, another thing that doesn't move around that much is the message of the trustees. was a trustee, saying the exact same thing. big shortfall, it's coming. deal with it now, don't wait until the 2030's. people didn't listen to us but the refrain has been the same. host: about 10 minutes left with charles blahous from the george mason university mercatus center, taking your phone calls. what is your work focused on at the mercatus center, what is the mercatus center? guest: it's a research institution affiliated with york mason university. we generally do research in various aspects of public policy. my research, in keeping with my work as a trustee, on the overall arches of the federal programs. a lot of work on social security, medicare, the federal budget as a whole.

host: adam is a social security recipient. good morning. caller: good morning. social security is an interesting topic. when i was teaching high school business math, i taught them about the first recipient of the social security check. they had to write an essay about social security and how it was not going to be there form. supposedly they were supposed to get it. a couple queif we look at the tl security, started at 1984, 35% on that, adjusted now would be $99,000. another question on wep, which very few people know about. those of us that went into public life, i was in public education, have a $2000 a month retirement check for that, but i

lose $285 off of my social security because i only have 23 years of substantial earnings instead of 30. why couldn't that be brought down to 20 so we are not penalized for going into education? one of the things that president biden said during his presidency was that he would end the windfall earnings for those of us on social security. when we started social security, those people that lived to be 18 years old had a life exit see -- life expectancy of 68 years old. now people are living too long. host: you bring up a lot of topics. the first topic you brought up, there is that famous picture, receiving the first social security check. guest: i should have been taking notes. the second questionn. host: there were several

questions. guest: this is an interesting one, and i know it's frustrating for people who move in and out of state, local retirement plans versus social security. the reason it exists is because of a quirk, shortcoming and how social security operates. the way that benefits are structured are in some ways a reflection of the fact that the benefit formula was drawn up a long time ago. your benefits are based on your lifetime average earnings. there is a progressive benefit formula that attempts to give you a better rate of return if you are on the lower income end. the consequence of that is that the system cannot differentiate between a person who earns a lot of money in a few years of earnings versus a person who earned a little bit of money in

a lot of years our earnings. just working with the average. what happens is the system unintentionally steers windfall returns to people who only have part of their career covered by social secury, tnklow income pey cannot see the income they earned in their other employment. this is why the windfall imion provision exists. i know it is frustrating to people who move from one form of employment to another, but you do have to have something likete system would pay windfall returns to a lot of people who are not supposed to be receiving it. that said, i think there's a better way to do it then having the wep. if you had a different benefit formula, one where you accrued a benefit for each year of annual earnings, you wouldn't need a wep. we need something like that in the current system, so we cannot just repeal it and not have problems, but if we had a better

type of benefit formula, we wouldn't need it. host: do presidents receive social security? did fdr ever receive it? guest: they do. no, federal employees were not in social security until the reforms of 1983. they were in the civil service retirement system. one of the reforms made in 1983 was to bring federal employees into getting that surge of payroll taxes they would be paying. they were phased out of the old civil service system, put into the new retirement system. host: anything that we should know about ida mae fuller and her story? guest: the significance of that goes back to what we were talking about earlier. security would be that a big fund would build out before you start paying significant benefit checks to people. ida mae fuller and others were

a part of a generation that got benefits that they personally didn't f didn't sper paying social security taxes. her benefits were paid by taxing the next generation. this is at the root of our financing shortfall today. this is an income transfer program, not savings, so it's a zero-sum game in a sen.for evert ahead, somebody else has to be behind. ida mae fuller came out from the generation that was far ahead, so subsequent iterations have to put in more to keep the system in balance. host: this is paul in delaware. democrat. good morning. caller: my question is i was wondering why there was such a reluctance to make the social security payroll tax more equitable. somebody making 150 thousand dollars pays 6% of their income. if you are making 300,000, you

are effectively paying 3% of your income and the percentage decreases the more you make. lifted that cap so that everyone pays 6% of their income, which would help on the funding end? guest: this reluctance to do everything with everything with the specter social security solvency, and i would say the level of reluctant to that mechanism is less. it tends to serve us better than most options. my guess, as mentioned, any bipartisan solution will probably have an increase in that cap. but we have to be careful. it doesn't sound that much of the problem. as an analyst who track these conversations online, it is striking how people have a very exaggerated sense of how■! the shortfall can be fixed by doing this. you can raise that cap a lot, probably fixes 50% of the shortfall, you still have a lot to do on the benefit side, eligibility side.

even if you eliminated the cap and exposed every penny of earnings in america to the social security tax, you eliminate about 30% of the annual shortfalls. so you still have a vast majority of work to do. we can do that. my guess is any bipartisan solution we would do that, but it only gets to a small fraction to the way of fixing the problem. host: last call in lake city, tennessee. thanks for waiting. caller: my problem is these commercials on tv with medicare advantage makes all people look like beggars. i'm on traditional medicare. i pay $506 a month last year for social security, what they took out of my social security check, hospitalization, prescription plan. i hear people say that you get all of this free if you go to medicare advantage. people that switch to that cannot come back to the traditional medicare. the purpose is to destroy medicare, that on universal

health care plan. host: talking about medicare. any thoughts on that or on efforts to prey on elderly americans when it comes to these types of benefits they receive? guest: it is tough. this could start an entirely new conversation. i am struck by the amount of advertising in our society about everything from insurance to pharmaceuticals to everything else. clearly there's a lot of money to be made somewhere. some of these advertising budgets are pretty lavish, to judge from my own television set. getting back to one of the things the caller was saying, the point that she made about having paid for medicare relates to what i was saying at the beginning of my the --

the argument of beneficiaries that they paid for, earned and funded their benefits is a powerful one. one that shields people from arbitrary reductions and benefits you see in a lot other programs. so, i think we depart from that in social security at our peril. in social security, we can say in a firm and clear since that, to this point, the resources in the trust funds in some ways represent what workers paid for their benefits. there is a part of medicare that is funded by a payroll tax. there is a part of medicare that is paid 75% out of income tax revenues. medicare is paid out of income tax -- but still, with medicare, i think that one of the things that shields beneficiaries from arbitrary cuts, especially on

the hospital insurance side is the fact they paid for the payroll program with income taxes. host: today, watch c-span's 2024 campaign trail, a weekly roundup of c-span's campaign coverage and where the candidates are traveling across the saying to voters. this from updated poll numbers and campaign ads. watch c-span's 2024 campaign trail today at 7:00 eastern and. c-span, your unfiltered view of politics. if you missed any of c-span's

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