Guest:	Dr. Gopi Shah Goda
Title:	Director of the Retirement Security Project and senior fellow in Economic Studies at the Brookings Institution
Summary:	If nothing changes, social security benefits will start to decline by 2034. There simply are more people are drawing social security benefits than there are people paying in to the program. There is a lot of talk about how to solve the problem, but so far, not much action.

The Federal Drive with Terry Gerton provides expert insights on current events in the federal community. Read more interviews to keep up with daily news and analysis that affect the federal workforce. Reach out to Terry and the Federal Drive producers with feedback and story ideas at FederalDrive@federalnewsnetwork.com.

Interview transcript:

Terry Gerton: Social security seems to be a perpetual topic. As Congress was pushing through the reconciliation bill, one of the potential bill payers was social security and the president swore he would not touch it. But everyone sort of understands that it’s not really on sound financial footing. Could you give us sort of an overview of where the program is today from a financial perspective?

Gopi Shah Goda: Absolutely. So the social security program works through a trust fund. I like to think about the trust fund as almost like a checking account, where it takes in revenue from current workers in the form of contributions that are paid from their earnings, and then it pays out benefits to current beneficiaries. And those benefits are based on a formula and the contributions that come in are based on a particular tax rate. And we’ve known for some time that those are a little bit out of balance. And just recently, the Social Security Trustees released their annual report. So starting in 2034, the Social Security Trustees say that they’ll only be able to cover 81% of promised benefits because the revenue that’s coming in is only enough to pay that amount going out. And even today, we’re actually paying out more than what we were taking in, but we’ve built up some reserves over the past few decades that is helping us pay those current promised benefits, but even those reserves will run out by the time we get to 2034.

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Terry Gerton: That’s really helpful background. Your recent paper also talks about the administrative overhead of the social security program. There’s a lot of political rhetoric around reducing waste, fraud and abuse in the social security program. What’s your take on that?

Gopi Shah Goda: Yeah. So I dug into the administrative costs that the program incurs every year, and it’s actually an amazingly efficient program given its size and all the things that it does. Only 0.5% of money going out is in the form of administrative costs, which just makes it quite impressive relative to other things that you might compare it to. And there’s also been a lot of study into fraudulent payments, sometimes called overpayments in social security reports. And if you add up the complete administrative costs, plus the overpayments that have been estimated to be made either for a variety of different reasons, that amounts to only 3% of the shortfall. So you might think that we can address some of these financial issues by removing some of the waste and fraud in the program, but that, even if you completely get rid of both of those things, it’s only a drop in the bucket.

Terry Gerton: And again, I can’t even get my head around the numbers because there are so many zeros associated with them, but understanding that really admin costs and even that errors are not enough to make up the differences is a sound starting point. How do you evaluate sort of the political disconnects between the political conversation around social security and the actual options available to fix this fundamental structural disconnect?

Gopi Shah Goda: Right. So I think about the disconnect as it’s difficult to tackle these long-term financial challenges in these programs because the changes need to be made by politicians and so many people rely on social security that touching those benefits is often seen as a third rail and something that just can’t be touched. And it’s really just about the math though. There’s too little money coming into the program to pay the promised benefits. And there’s only two ways to address that issue. One is to increase the revenues coming in and one is to reduce the benefits going out. And it’s really just that simple, but people don’t really like talking about actual solutions that address this financial shortfall.

Terry Gerton: I’m speaking with Dr. Gopi Shah Goda. She is the director of the Retirement Security Project and senior fellow in Economic Studies at the Brookings Institution. All right, so let’s talk about some of those solutions because math is math. People have put a number of ideas on the table. Could you kind of run through the ones that you think are most feasible?

Gopi Shah Goda: Yeah. So there’s a lot of different ways to do benefit reductions. Of course, the simple way to think about it is just an across-the-board benefits cut, but most people don’t see that as the most likely way to reduce benefits. You could also increase the retirement age, which operates almost similarly as an across-the-board benefits cut, but it’s also framed a little bit differently because people might think about different times to retire when the full retirement age has moved. But there are also ways that the growth rate of benefits could change, either the growth that is used to determine benefits at the time that they are claimed, or the growth rate that is applied to benefits after you claim to account for inflation. There’s also ways to adjust benefits differently for higher income versus lower income individuals that would involve changing the formula that converts lifetime earnings into a benefit amount. So those are kind of in the class of changes that would adjust benefits.

Terry Gerton: And there’s also a set of changes that might affect contributions, right?

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Gopi Shah Goda: Exactly. So the contributions coming into the program are currently a set percentage of earnings until a taxable maximum. So there are a couple of different ways that you could change the revenues coming into the program. One is to adjust the tax rate that applies to those earnings. The other is to change the taxable maximum itself by increasing the set of earnings that the tax applies to. The third way that you could think about changing the revenues coming into the program has to do with what counts as earnings. Right now, we only use wage compensation, but if you thought about including other aspects of compensation, non-wage benefits such as health insurance and other things that employers might provide, that also increases the base at which that contribution rate would be applied.

Terry Gerton: So certainly, the policymakers, the politicians that will have to make these decisions, want to make sure that they protect the most vulnerable folks because social security is a key contributor for folks in sustainable income later in life. How do you think, if you could shake your crystal ball or look into that, how do you think they get to a package that actually addresses the fundamental disconnects here?

Gopi Shah Goda: Right. So I do think it’s very important to protect those populations that rely on social security the most. The benefit formula is actually somewhat progressive in that it provides a lower replacement rate for higher levels of earnings than it does for lower levels of earnings. However, some of that is undone because the higher-income beneficiaries often live longer and so they receive their benefits for longer. And so I think there is a case to be made about increasing the progressivity in the program by either adjusting the benefit formula or changing the rate of growth in benefits differentially by income.

Terry Gerton: Do you have a recommendation?

Gopi Shah Goda: There are proposals out there that are called progressive price indexing, which essentially does the latter where the way that benefits are determined vary based on your level of income such that the benefits are exactly the same as what are promised by law for say the bottom 30% of the lifetime income distribution. And then they are adjusted such that higher-income beneficiaries receive lower benefits than they would based on the current formula. And that structure does address a lot of the financing shortfall.

Terry Gerton: Well, as you say in your paper, there’s no free lunch. They’re going to have to come to some decision eventually on how to balance the books for social security, right?

Gopi Shah Goda: That is the hope. The one concern is that when it comes time to actually face this shortfall, that Congress will step in and say, ‘We’re just going to borrow this extra money from the general revenues.’ And I think that would be a very bad outcome because it just kicks the can further down the road. It makes it even harder to address the financial issues of the program once you kind of open that door.

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