I had intended to write about J.D. Vance's views on Social Security following his June 13th interview. The New York TimesBut now that Vance has been named Donald Trump's running mate, it seems like the time to do just that.
Vance and Trump have an aversion to Social Security reform, particularly the fiscal conservative idea of slowing the growth of Social Security benefits to address the roughly $25 trillion funding shortfall in the program. I don't agree with them, but it's not really a philosophical disagreement. And, as Vance's comments on Social Security show, it's not really a disagreement about the factors that affect the financing of Social Security.
Rather, it is how much Social Security's funding depends on one thing: it's important to know how the federal government's largest program actually works. I don't mean to single out Vance; he's a thoughtful man, and as a senator he has a lot of other things to worry about. But like many conservative thought leaders, Vance doesn't focus too much on the minutiae of how programs like Social Security work. But he should. Progressives know more about federal programs, and it's to their advantage.
In speaking with Ross Douthat, TimesVance's thoughts on reforming Social Security: “Take the seven million prime-age men who are not in the labor force, who are often publicly funded. If you move a few million of those men from not working to working, and raise wages across the board, and raise tariffs, I think you're going to get a lot more benefit out of it than the nine or 10 years that the actuaries are talking about. You're going to get more revenue out of the tariffs, of course, but also from more people entering the labor force, from productivity growth, from higher wages, from getting young people who aren't working to move into the labor force.”
So policies that create more American jobs (like tariffs in the Trump/Vance view, but really any policy will do) mean more people working and paying into Social Security. All of this is true.
What's not true is that these plans “will buy you a lot more than the nine or ten years the actuaries say they will.” Social Security's actuaries haven't exactly modeled what Vance is discussing, but they estimate the impact of real wages growing 1.74% per year, not the baseline assumption of 1.14%, but higher than the 0.95% seen in the U.S. since 1960. In other words, this means much faster economic growth.
And a dramatic increase in real wage growth would extend Social Security's lifespan by just one year, from 2035 to 2036, and reduce the long-term funding shortfall by about one-third. And even then, Vance is likely overstating the benefits of his own policies, which are essentially a temporary increase in U.S. labor force participation, not a dramatic increase in economic growth over the next 75 years.
Vance also underestimates the ability of households to provide without constant increases in Social Security benefits. He says, “I think the fiscal problem here is downstream of a much deeper problem. One way to understand the Social Security problem is that old people can't work, young people can work, but babies can't work. So you have a certain age of people supporting babies and old people. And in our society, that's usually people between 18 and 65 years old. If the argument here is that we have to cut Social Security, then you're essentially saying that we have to privatize who pays for the elderly generation, which is now a public problem. And I don't know why people think that we're going to solve a lot of the problems by just lumping old people together and saying, 'You guys, fend for yourself.'”
Vance correctly points out that telling poor Americans to fend for themselves won't solve a lot of our problems, because Social Security was created to protect low-income people. But we could achieve a lot by starting to tell middle- and upper-income Americans, who are already likely to be the richest seniors in the history of the world, to save a little more for themselves and rely a little less on government. Increasing the savings of high-income households not only reduces dependency on Social Security, but also increases the capital stock available for building factories, researching new technologies, and so on.
Consider a high-income couple, each earning the maximum wage subject to Social Security tax of $168,600. If they retired today, they would receive more than $96,000 a year in benefits between them. And this number is growing, so that by 2050, the highest-paid couple will be receiving more than $130,000 (in today's dollars) — far more than any safety-net program would ever need to provide.
If this wealthy couple lived in Canada, they would receive a total of about $26,000 from the Canadian Social Security system. If they lived in the UK, they would receive less. If they lived in Australia, they would probably receive nothing, because pensions in that country are means-tested.
And guess what? These countries survive. Their seniors aren't starving in the streets. They're just saving for their retirement. The argument that Social Security should focus on being a stronger safety net than a pension system for middle- and upper-income seniors is a fundamentally conservative idea, because it directs government resources where they are really needed, while not substituting government generosity for what individuals and households can, should, or want to provide for themselves.
Cutting back on Social Security benefits doesn't have to happen overnight. We're talking primarily about limiting benefit increases, not about eliminating the program. Building a Social Security system that provides highly effective social insurance at an affordable cost is actually not hard. The hard part is getting people to understand that that's the hard part.