To fix Social Security, whose ox should be gored?

This post is the second in a new Beacon feature, Counterpoint, a dialogue between liberal Rick Dollinger and conservative Geoff Rosenberger.

Geoff: Rick, as you know, Social Security has been cash-flow negative since 2010, with annual FICA payroll taxes bringing in less money each year than Social Security pays out in retiree benefits. Back in 1950, there were 16.5 workers paying into the Social Security system for every retiree receiving benefits. Today, according to the Social Security trustees, there are only 2.7 active workers supporting each retiree. A decade from now, the trustees expect just 2.3 active workers for every retiree. The 2025 Social Security Trustees Report projects that the Social Security Trust Fund will run out of money in calendar 2033, eight short years from now. In early October, the Social Security Administration’s chief actuary published an extensive range of available options to resolve the funding shortfall, quantifying the funding impact of each one.

You’ve reviewed both reports. The problem is real, it’s not going away and the trust fund depletion date is rapidly approaching. So, which options would you recommend? And please don’t let the fact that you and I are both in our 70s and Social Security recipients influence your thinking!

Rick: Geoff, I start with a simple observation: Social Security is a national retirement program. It taxes individuals during their working lives to create a pension benefit that will payout over retirement.

At its origin, it was designed to be a stable for retirees—a form of forced retirement plan. It was never intended, at its origin, to be a wealth transfer plan. As you know, Geoff, it grew, by legislative design, into something more: an extended disability plan, for example.

As I see it, any analysis needs to start with the proposition that everyone who pays into the system should get their contribution—and some appreciation — back at retirement. But once a recipient has drawn down their contributions, then the benefits need to means tested; wealthy recipients should see their benefits decline at some point—say, 10-12 years after drawing benefits—and then benefits would shrink depending on their income.

Does a billionaire need Social Security after drawing out 10 or 12 years of benefits?

My idea has complications: What is the “means” (asset or income-based or both?) that results in a reduction of benefits? Is there a graduated reduction as your post-retirement income is reduced? When does the reduction or phase-out occur—how many years? I need to review the report to see what impact means testing—after some period of time—would have on the viability of the model.

Mean testing after some period of drawdown? I have other ideas, but first, Geoff, a reaction to that idea. Thoughts?

Geoff: Neither of us were around back in 1935 when the Social Security Act was passed, but we can read the statute. You’re a lawyer. You like that stuff. Title 1, Section 1 of the act begins as follows: “For the purpose of enabling each State to furnish financial assistance, as far as practicable under the conditions in such State, to aged needy individuals (emphasis added)…...” Until I read the statute, I didn’t realize Social Security was originally administered through the states, not directly by the federal government as it is today. 

But, then Title II of the act goes on to define “qualified individual” as anyone who has reached the age of 65 with earned wages above an established minimum threshold in any profession aside from those expressly excluded by the Act itself. So, the act actually contradicts itself, first stating that the law’s purpose is to provide assistance to needy aged individuals, but then it opens up eligibility to anyone 65 and older who has earned qualifying income. You and I both receive Social Security and neither of us is financially “needy.” Although “needy” might describe our respective personalities… 

The Social Security Act established an initial maximum monthly benefit of $85, which translates to $2,010 per month in 2025 inflation-adjusted dollars. But today, someone who retires at age 67 can collect as much as $4,018 a month, double the originally intended inflation-adjusted maximum benefit. If you wait until age 70 to start collecting, that maximum benefit rises to $5,108 a month, well north of what the act originally intended.  

The official name for Social Security is “Old Age, Survivors and Disability Insurance.” I’m going to anger a lot of people with this comment, but the key word that literally everyone overlooks is “insurance.” No one gets upset if their house never burns down and they don’t get to collect the homeowner’s insurance for which they paid decades of annual premiums. Maybe Social Security should function the same way—the way Title 1, Section 1 of the act actually reads—it’s there if you need it, but only if you need it. With financial “need” being generously defined, of course.

What are your thoughts around that? Are you looking forward to having protestors picketing in front of your house if you adopt that position?

Rick: Geoff, picketing protesters if Social Security were means tested after a period of time? Where would they park their BMWs and Teslas? Would their signs say: “We have wealth but we need more?” “We are good parents, but our kids should continue working so we can jet to Florida or beyond?”

I get that Social Security for all makes it palatable to everyone’s politics—both left and right, Democrat and Republican—which is why it is the third rail of American politics. But seriously, once everyone has taken something significant out of the insurance pool—say, 10 years, no change, full benefits, but a graduated reduction after that depending on “means”—how can anyone complain? You got what you paid in—plus the employer benefit (that’s another issue)—and now why should younger Americans support you by paying you insurance funds if you already have enough and the payout is beyond what you paid in?

Bring on those picketers—I’ll have valet parking, lattes and croissants waiting.

Geoff: Well, since we seem to be barreling along the Soak the Rich Highway, how do you feel about raising the FICA income limit? This year, FICA is only paid on salary and wages up to $176,100, with the 2026 cap increasing to $183,600. According to the Social Security chief actuary’s report linked above, removing the earnings cap would eliminate 67 percent of Social Security’s long-term funding deficit. Of course, that math likely assumes no commensurate increase in Social Security benefits for those high-income earners in proportion to their increased FICA contributions. So, for them, Social Security would cease to be an actuarially based retirement program and would simply transition to the kind of income tax increase you folks on the left love to embrace.

Of course, under current law, Social Security is already skewed to benefit lower-income earners. According to the Social Security Administration’s math, a single male taxpayer born in 1955 who earned the FICA maximum salary throughout his life will only receive Social Security benefits equivalent to a 0.61 percent annual real rate of return on his FICA contributions. Conversely, a low-income earning male, also born in 1955, will enjoy Social Security benefits equal to a 3.23 percent compound real rate of return on his FICA contributions. That’s over five times the ROI of the guy making the maximum. Doesn’t that soak the rich enough? 

Rick: Geoff, soak the rich?  

First, I am fine with raising the FICA income limit, as it has for decades. It does impact higher wage earners, but if the system will end up solvent, they have little complain about. 

Second, under my model of means testing after some period of payout, the rich don’t get to soak everybody else.

For a decade, everyone gets their current payout. In the decade—or maybe longer if needed—the “rich” (as you describe them) get back everything they invested. They are whole. They got a guaranteed rate of return on their investment—no stock market gamble, no investment in collapsed tech stocks, no mortgage-backed securities, no overseas real estate ventures.

The FICA contributions bought insurance in case the employee was “poor” in old age. If the employee ends up “rich,” they don’t need any more than what they paid in. Social Security was not designed to make the rich richer, at the expense of the next generation of workers.

We can always graduate the reduction in benefits, once the rich get their share back, reducing the payout depending on their relative “means.” We could create a base, say 20 percent of their payout after 10 years. The accountants and actuarial folks can figure that out.

Will the “rich” scream too loud if they get what they paid in when, as now, the system is asking others—the guy making minimum wage—finance their rich lifestyle?

Do Joe Biden and Donald Trump really need the cash?

Geoff: Rick, there’s a small math problem with your proposed solution. According to the Social Security Administration’s analysis linked above, cutting Social Security benefits by 50 percent for single retirees with modified adjusted gross incomes above $180,000 and for married couples with incomes above $360,000 only eliminates 17 percent of the funding shortfall. Setting aside the view that $180,000/$360,000 seem to be pretty low cutoff thresholds for retirees living places like New York City or San Francisco, I’ll play along. Let’s apply your 100 percent elimination proposal at those income levels. That only solves 34 percent of the coming funding shortfall.  How do you propose closing the remaining 66 percent funding gap? 

Rick: My idea knocks a chunk of the shortfall off with no real harm to anyone—I think it is less than your estimate because I incorporate a 10-year lag in the benefit reduction. 

Then, because Americans are living longer, we do three more things: 

1. those with substantial incomes or means cannot draw Social Security until age 70;
2. there is no increased benefit for anyone by waiting until 70 to collect; and
3. the COLA for higher-income recipients would be reduced or eliminated every year.

I am not sure how much that would reduce the anticipated deficit, but it would start people thinking about whether Social Security should be a wealth transfer plan rather than what it was intended to be: a form of insurance to give every contributor some retirement income and prevent poverty among the aged.

Finally, we could then talk about the Medicare premium as part of the payroll deduction as well, which is one area that clearly justifies an increase in the payroll deduction because medical costs for the elderly have skyrocketed. Later on that issue.

As a famous character, known to most Social Security recipients, once said, “That’s all folks.”

Geoff:  Well, as Lee Corso used to say, “not so, fast my friend.” We’ve only touched on a few of the available options in the solutions menu. Here’s the math around several of the others:

1. Increase the FICA tax rate by 4 percentage points, adding 2 percentage points for the employee and 2 points for the employer. That will completely eliminate the funding shortfall.
2. Increase the retirement age by two months every two years until it reaches 68 years of age. That covers 14 percent of the shortfall. Taking the full retirement age to 69 resolves 36 percent of the funding deficit.
3. Reducing annual COLA increases to the CPI change minus 1 percentage point cuts the funding gap in half. Reducing the COLA increase to inflation minus 0.5 percentage point covers 27 percent of the funding gap.
4. Reduce benefits for newly eligible Social Security recipients starting in 2026 by 5 percent. That covers 16 percent of the funding hole. 

Politically, the only way to win public support for inflicting the pain these various solutions entail probably requires goring everyone’s ox. We can’t place the entire burden on retirees, nor can we place it all on those still working and paying FICA taxes. It can’t all fall on the shoulders of employers nor all on employees. Americans will agree to make sacrifices if they believe everyone else is sacrificing right along with them. But no one wants to carry the entire funding burden alone while others escape unscathed. So, the answer isn’t one big magic solution, it’s measured doses of several of these options working in combination with each other.

That, and the willingness on the part of both citizens and politicians alike to first acknowledge that the problem really exists, that it isn’t going away and that this is a “third rail” that needs to be touched.

Rick: I agree: means testing the benefit payout after some time does not solve the problem. But it shifts the focus of Social Security from wealth transfer to a tool to prevent old-age poverty. Once we means test the benefits, we increase the tax slightly—1 percent for employee and employer—means test the COLA, take the full retirement age to 68 and you’re there—or much much closer anyway.

The reduction in wealth transfer to higher net worth folks, already retired, through means testing after they draw down some amount hurts no one. The next generation pays a little bit more (a penny per dollar?) for grandma and grandpa,  but the system is fortified for them in the long term—the graduated COLA goes mostly (if not entirely) to those who need it and folks in their 60s now wait two more years before they can get full retirement.

There is some pain in this tinkering with this “third rail”—not much—and not enough to seriously “rail” against. With these changes, everyone paying into the pool knows that once you qualify, your “social” benefits are “secure,” which was what was intended from the start.

Richard Dollinger is a retired Court of Claims judge and a former state senator who lives in Brighton. Geoff Rosenberger is retired co-founder of Clover Capital Management Inc.

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