speakers in the motion to vacate into potential government shutdowns. we are on the brink of these potential first ever economic defaults. there was a lot of drama in the last year and this congress but not a lot of lawmaking. i'm seeing a lot of lawmakers leave congress maybe because they are tired of this. we are seeing less legislating and more politics and folks are saying i'm done with this, i've had enough. host: covering it all for the hill newspaper is michael schnell at the hill.com. it's easy enough to find at twitter. >> washington journal continues. host: always glad to welcome back charles blahous, senior research strategist at george mason university's mercatus center discussing a new report on the status of siathis is an m

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 public trustees. i did that once. the two public trustees tend to be the public face of the trustees report. when there 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 terms are negotiated every year. 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 schedules. if they are 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 ■i■#depleted and they can contie 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 ■é lbenefits. 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 to 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 ofdelaye of the changes that we have to make if we wait until the 2030's, by then the shortfall is so 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 afáqford to wait another presidential term to get the job done. host: 71 million americans per 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 acted today, you have to raise the payroll tax from 4.6% to the equivalent of 16%. lawmakers do not want to change the payroll tax that much. similarly on the right, if you want to do it by cost restraints,úf■b we are past the point where you can fix social security without additional revenues and still maintain the

current level of benefits. you will have to do a little bit of everything. eligibility age also have to be a part of the picture. there are tone is the tax burdey as a worker. what is the annual income you can have in retirement. e 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 time is 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 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 ssy 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 substantive merit to that thinking, which is that the actual cost of living, the cost of your consumption needs is less for you if yos0u are a higr 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 full amount if you are a lower income person but not if you are higher income. host: 30 minutes left, talking about social security, about the

future of social security in the 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 at recipients. caller: thank you for having me. i am curious about the other side of the social security. for instance, when an employer has to pay 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. ways that is artificial. most economists will tell you, in effect, both halves are coming out of your 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,re trying to w 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 where they are. host:

why are we trying to did down to the rest of the world instead of making the rest of the world come up with us? guest: i can't speak to the nature of the comment or the thinking behind it. i wi i think most policy experts and low makers when they think@y of social security i think they are thinking primarily in terms of how to make sure it's financially sound. the things tha done to make sure social security can continue in its current form are not things lawmakers find it pleasant to do. you have to raise taxes or raise eligibility ages or reduce the growth of the benefit formula. the reality is we are going to have to do all three. politicians don't like doing any

of those things, which is why it hasn't been done. unfortunately, what happens is that the longer you delay action, the more severe those changes have to be. if we had made legislative adjustments 20, 30 years ago they could have been more gentle and theymp -- would not have ben felt by any cohort of beneficiaries or taxpayers. unfortunately, lawmakers havet e more they continue to delay the more difficult it becomes. host: why did we see decide to set a cap on how much we would tax for social security? guest: historically that is because the program is supposed to provide a floor of income ths that getting back to what i was saying earlier about the ia bena self-financing benefit, each individual's been fit -- benefit is a direction function of the

amount of their earnings that are subject to the social security tax. you have this have i tie between what you contribute and the benefit you are entitled. that's a big part we didn't think of it as welfare. i contributed toward this benefit and it's based on 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 passed that amount. that's the historical basis for t there have been proposals, and my guess is any bipartisan solution to social security's financing shortfall would inkraoets in the amount of in-- increase in the amount of income subject to the tax. host: would that increase then equate to more social security benefits or the person whose wages are being taxed? or then using that money to help fund other parts of thegram and their social security monthly stipend stays the same. guest: this is the right question. not everyone asks this question.

i'm glad you asked. that is -- creates a hobson's choice. we have this earned benefit structure where your benefits are a function of your contributions. when you tax higher income people more, one of two things happens. either you pay more benefits for hire income people who don't need it or sever that connection between contributions and benefits. and that is -- that's crossing a rube con-- rubicon in social security. we do change something very fundamental about social security where now some people, as with we are income security programs, some people are paying taxes into a program not getting anything for it. other people are getting benefits they didn't fund. that dynamic in other programs has led to continual political collisions where you have the interest of taxpayers pitted against the interests of beneficiaries which is why those programs are constantly saying what should the eligibility rules be, and

all these other things. if you sever that connection in social security you risk creating that dynamic. there is a way, i think, to get the best of both worlds. you can at the same time raising the cap on tax wages you can go into the benefit formula and cut the accrual rate on the higher income end. host: what does that mean? guest: the benefit formula in social security is a progressive