One of the big accomplishments of the labor movement in the 1900s — both in the U.S. and in other industrialized countries — was the concept of pensions (both public and private).  The basic concept behind pensions was to guarantee workers that, when they got too old to work anymore, they would have a guaranteed payment for the rest of their life.

Of course, with the decline of the labor movement, there has been a movement away from “defined benefit” plans to “defined contribution” plans.  From the workers perspective, a defined benefit plan offered two significant advantages:  1) if something went wrong, the company had to make up any shortfall caused by bad investments; and 2) the company would hire a competent money manager to properly invest the funds dedicated to the pension plan.  From the perspective of upper management, a defined contribution plan had two major advantages:  1) the company’s contribution was set in stone regardless of whether that investment ended up being sufficient; 2) the most economically savvy (i.e. the financial types that tend to ended up in the top tiers of companies) could get more from the pensions by making slick investment decisions while the average worker was left with measly investment gains (and maybe even losses if the default investment ended up going down the tubes).

At the public level, the big pension plan in the U.S. has been Social Security.  Social Security has always been a variation on a defined contribution plan.  But it has also always been a “pay as you go” type plan.  These two features has always combined to create a “crisis on the horizon” situation for Social Security.

The reason for the crisis is that both the funding and the calculation of the “pension” amount are set by law.   When initially set-up (and in subsequent amendments to keep the program going), Social Security was designed to take in more in taxes than was being spent on benefits.  In any year in which that happened Social Security would use its surplus to purchase federal government bonds (thus helping the rest of the government function despite running at a deficit).  But the demographic calculations for Social Security showed that a day was coming (both due to “boom” generations retiring and Social Security and other programs extending life expectancies) when Social Security would start running in the red and have to cash in those bonds.  The unanswered question has always been what would happen when Social Security (and Medicare) ran out of bonds and needed to borrow money like the rest of the government to function.  Part of the selling point of Social Security has always been that the program has been fully paid for and  is not just another welfare program.

In recent years, there has been a new development in federal finances.  With the rest of the tax code being completely wrecked by the Republican Party, the newest version of stimulus changes to taxes has been to temporarily suspend payroll taxes for Social Security and Medicare.  This idea can work in the short term if the government is required to contribute the funds that would have been raised by the payroll taxes to Social Security and Medicare.  (In the long term, such temporary programs undermine the belief in the public mind that workers have paid for their Social Security and may make it easier to cut Social Security benefits in the future.)

But the current administration appears to be playing with the obvious “next step” for those in the Republican Party that still, after eighty years, wants to repeal the New Deal and bring us back to the era in which business ran roughshod over works and consumers.  If Social Security taxes are simply taxes (rather than contributions to a retirement program), then permanent cuts to those taxes is consistent with the Republican tax cut agenda.  But those taxes are dedicated taxes; so cutting them will very quickly result in Social Security having to burn through the last of the government bonds.  In other words, rather than running out of cash in the early 2030s, Social Security would run out of spare cash in 2022 or 2023.  At that point, what will happen with Social Security?

Of course, President Pinocchio will not tell us how he would restructure Social Security if he does succeed in cutting payroll taxes permanently.  He can spend his monthly Social Security check in one night at a private club and does not understand that a large percentage of Americans depend on their Social Security checks.  At a time when we need an honest discussion of what to do to save Social Security so that it is around for those of us in our 40s and 50s, President Trump has no problem with being the president who quietly kills Social Security.