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>> We are in the very midst of a revolution, a most complete, unexpected, and remarkable of any in the history of nations, objects of the most stupendous magnitude and measures in which the lives and liberties of millions yet unborn are intimately interested are now before us.

- John Adams ♪ JOHN KATKO: Welcome, America, to "Balancing Act," the show that aims to tame the political circus of two-party politics.

I'm John Katko.

This week, something every American cares about but no one wants to talk about: How to fix Social Security.

Soon to be insolvent - or can we save it?

We'll investigate as we welcome economist and policy expert Charles Blahous to the center ring.

Then, Chris Pope and John Hishta will take swings at the issue on the trapeze.

And finally, I'll give you My Take.

But first, let's walk the tightrope.

♪ Social Security.

It's often called the "third rail of politics" for a reason.

Just a mere mention of it can instantly derail a political career.

However, if nothing changes, Social Security is predicted to be insolvent in less than 10 years.

And by 2033, the program will only be able to pay anywhere from 77% to 81% of its obligations, which will be a real shock to its millions of recipients.

So how do we keep the system on track and running smoothly for decades to come?

To understand this future, we've got to take a trip to the past.

Informal systems of economic security once existed in early America.

The country's workforce primarily consisted of self-employed tradesmen and farmers who directly controlled their earnings.

They relied on extended families for support in old age, but the Industrial Revolution changed everything.

The country saw a mass migration to cities, which affected how people made a living.

Gone were the days of workers making their own way.

Now, breadwinners were employees subject to employers' wages and markets, and as workers relocated, family sizes became smaller, extended families grew more distant, and the expectation of caring for one's own started to unravel.

By 1934, due in part to the Great Depression, over half the elderly in America had insufficient income to be self-supporting.

And while many states had some form of senior pension program, the vast majority of seniors were not enrolled due to the stigma of public handouts.

A rebrand was in order.

President Franklin Delano Roosevelt introduced the idea of social insurance-a work-related program where your own contributions through employment taxes provide for your own economic security.

The Social Security Act was signed into law in 1935, with amendments in the 60s and 70s to create cost-of-living allowances, or adjustments to Social Security payouts to match the rate of inflation.

But things weren't all that rosy.

Problems were indeed looming, as the economy wasn't exactly booming for the baby boomers.

By 1980, the rate of inflation far outpaced the rate of wage increases.

Adding to the problem, boomers were projected to be a much larger body of retirees than in generations past.

Charged with leading the circus in Washington, newly elected Republican President Ronald Reagan and Democratic Speaker of the House Tip O'Neill performed a balancing act of their own.

They reached across the aisle and created bipartisan legislation that adjusted cost-of-living allowances to now keep up with wages, not inflation.

They also raised the retirement age by two years, accelerated the payroll tax, and made it so half of one's Social Security benefits became taxable income.

Reagan's common-sense solution wasn't a permanent fix, though.

In 1965, four workers were paying into the system for one beneficiary.

Today, only 2.7 workers are contributing for every one recipient.

Roughly 54 million Americans receive retirement benefits of, on average, $2,000 a month, and, according to a 2024 survey, 27% of them rely solely on Social Security for their income.

So, what do Americans think the future holds for them and Social Security?

A 2023 Gallup poll found that only 37% of those aged 30 to 49 believe they will even receive Social Security benefits, while a whopping 61% do not.

So, how do we put the security back into Social Security?

Do we raise the payroll tax?

Do we continue to raise the retirement age?

Or is it something else that we have in mind?

Let's raise these questions and more with our first guest as we step into the center ring.

♪ ♪ Joining me now is economist and senior research strategist at George Mason University, Charles Blahous, a policy expert who knows so much about this subject, he also wrote a book entitled Social Security: The Unfinished Work.

Welcome, Charles.

BLAHOUS: Thanks for having me.

KATKO: Thanks so much for coming on the show.

We really appreciate it, and let's get right to it.

When was the last time Social Security needed reform?

I believe it was 1983, is that correct?

BLAHOUS: The last major reforms were 1983.

Now, we've needed reforms for a long time since then, but we haven't been getting them.

KATKO: So let's walk through up to the time before 1983 briefly, kind of set the table for 1983, and then we'll talk about what happened after that.

So tell us how we got to the point in 1983 where we needed reform.

BLAHOUS: Well, that's a great question because a lot of people do not know that if Social Security still existed in the basic form that it was under FDR, we actually wouldn't have a financing shortfall today.

What happened in the 1970s was that there was an expansion of the program and there was an automatic indexation of the growth of benefits.

So each year, starting in the 1970s, there is an increase in the initial benefit that is paid to each subsequent cohort of retirees, and that increase is much faster than the rate of inflation.

There was a consultant panel at the time that warned lawmakers this would not be sustainable over the long run, but lawmakers didn't heed the warnings, and that drives a lot of the problem that we have today.

KATKO: So again, just to refresh the public memory, the late '70s were rife with extraordinarily high inflation.

Is that right?

In interest rates and everything.

So did that partly fuel the effort in the '70s to fix and increase funding?

BLAHOUS: Well, yes, in several respects.

One is, it made the idea of inflation indexation more attractive and necessary, it seemed, to lawmakers.

Unfortunately, they made some technical errors in how they went about it.

But the other thing that was influenced by the economic environment was this decision to index the growth of benefits for average wage growth.

In the '70s, as I think you know very well, there was a period where real wage growth was negative.

So lawmakers didn't fully appreciate how this would drive the growth of system costs going forward because that wasn't really the experience that people were having in the 1970s.

KATKO: So, get us to the point in 1983 where they felt it necessary to make major adjustments to Social Security.

What prompted it and what was the result?

BLAHOUS: Well, what happened was that the program was literally on the verge of not being able to send out the checks.

The trust funds were just about depleted of their spending authority.

President Reagan appointed an emergency commission.

Rather, he did some of the appointments, but the leaders of Congress also made appointments to the commission.

The commission flailed around a lot in the 1982 election season because even through the auspices of the commission, people were afraid to deal with Social Security in an election-year environment.

They came out of the election, and the checks were literally just a few months away from not going out, and there were emergency negotiations.

There were key senators-Dole, Moynihan, others-who were represented on the commission.

There was a fellow named Robert Ball, who basically represented House Speaker Tip O'Neill on the commission, and they negotiated a package with advisors of the Reagan administration.

They put together about two-thirds of a solution, and the final one-third was added in amendments on the Senate floor.

KATKO: So what was the end result?

BLAHOUS: The end result was a solution that was solvent for a temporary period but not sustainable over the long term.

One of the things that is very interesting about that process is that the commission members were getting from the actuaries estimates of how much each provision would fix the long-term 75-year shortfall on average, but they were not getting estimates from the actuaries on how much the provisions would do for the program in each specific year.

And so when they put the package together, they wound up with something that had huge surpluses in the near term but even larger deficits in the long term.

And so literally, the year after the solution was enacted, trustee reports started coming out again, saying the system is going back into insolvency.

KATKO: So is it fair to say that waiting till the 11th hour isn't a good idea when you're dealing with a monumental problem like this?

BLAHOUS: Well, that is certainly a fair statement under any circumstances.

I would say it's even stronger-we should make that statement even more strongly in our current circumstance.

If we were to wait till the trust fund depletion date of 2034 to try to fix this problem, by then, it is simply too late to reasonably solve it.

Right now, the program's shortfall is about equivalent to 27% of all future benefit claims.

That's huge, obviously-that would not be an easy shortfall to close.

But by the time you get to 2034, the shortfall is so large that even if you completely eliminated all new benefit claims, the system would still go insolvent.

So by then, it's too late to really solve the problem.

KATKO: So let's talk about public sentiment in the current form here.

You know, we mentioned it earlier in the show that a lot of the younger individuals believe that there's going to be no Social Security for them.

Can you talk a little bit more about the public sentiment at all age groups?

BLAHOUS: Yeah, it's very interesting.

Generally speaking, older generations-this has always been the case-older generations don't want to see any changes, right?

They're dependent on benefits.

They figure they played by the rules, they're done with their end of it, and they want to make sure the government holds up their end of it.

So they're saying, "Leave things as they are."

The younger you go, you almost get an overcorrection in the other direction.

You talk to young people, and they say, "I don't think benefits are going to be there for me at all," right?

And the reality is it's in the middle.

We have to make changes, despite what today's seniors would like to have happen.

But the system's not going to disappear.

It's not going to stop sending benefit checks out altogether as young people would fear.

The risk is that we would have a very different type of system going forward simply if lawmakers are unwilling to preserve the way Social Security has operated historically-as a self-financing benefit that workers can say that they earned and paid for.

That is what is at risk.

I don't think the system is going to disappear, but there is the risk that they would have to do a massive bailout from the general fund, and then Social Security really wouldn't be Social Security anymore.

It would be like another welfare program competing for funding each year from within the general budget and with benefits that are much more changeable, much less reliable, simply because they bear no connection to what workers actually put in.

KATKO: Okay, we've got about a minute left, so let me ask this one final question.

Just tell people: if we didn't do anything, what would happen in 10 years with the fund?

You said it's not going to go away.

Can you give us more specifics about that?

BLAHOUS: Yeah, well, legally, what would happen is the system is not permitted by law to send out benefit checks in the absence of financial resources in the trust funds.

So basically, you would have an effective across-the-board benefit cut, immediately about 20% or so, through the mechanism of delay, right?

The checks basically would be delayed until the payroll taxes came into the trust funds to be able to finance them, and those payroll taxes would be lagging about 20% shy of what the program owes.

So people would be getting their checks; they'd be getting them on a delayed basis.

Now, in practical likelihood, you know, it's unlikely that lawmakers would stand for that, right?

What's more likely in a practical sense is that they would do a massive bailout of the system from the general fund, and that would really be the worst of all policy worlds because, on the one hand, you have to issue all this additional debt to keep full benefits flowing.

And on the other hand, workers' benefits would become less secure because, again, they would lose that connection to what they put in, and benefits would just be whatever lawmakers feel they can afford each year.

KATKO: Well, it's a huge problem.

We're going to have to deal with that, and we appreciate your insight and setting the table for us.

Charles Blahous, thank you very much.

Now, let's continue the conversation up on the trapeze.

♪ ♪ So now we know the problems with Social Security.

It's a very popular program that, ironically, more than half of the country has little faith will exist in 10 years' time.

You might be asking, why hasn't this been fixed yet?

So, let's take a swing at it, and joining me on the trapeze are Senior Vice President of Campaigns at the AARP, Mr.

John Hishta, and Senior Fellow at the Manhattan Institute, Mr.

Mr.

Christopher Pope.

Welcome, gentlemen.

HISHTA: Thanks for having us.

POPE: Thanks for having us.

KATKO: So, the perceptions are that Social Security isn't going to be here, or it's going to be dramatically reduced.

So, what we hopefully can focus on with both of you is what your views are and how to fix it and when we should do that.

So, Mr.

Pope, let's start with you.

POPE: Well, the main problem that we face is that the cost of the program is increasing every year, and the money coming in just isn't increasing at the same rate.

The amount of people retiring, the amount of people drawing benefits-they're living longer and longer.

And there isn't that contribution that's increasing in line with that.

So, my proposal is basically that people should have a choice for how the program works in the future.

They should be able to essentially keep the current benefit and pay additional taxes to finance the current benefit as they want it to be, or they should have an alternative choice-essentially a better benefit, a flat benefit of about $1,000 a month, to guarantee that they won't be in poverty in old age, and for the rest of their working career, they should be able to have a lower payroll tax.

So, this will be a choice that we would allow for younger workers that would basically put the program on a sustainable track, would make the program more effective at securing people from poverty in old age, and also have less of a burden on workers for the remainder of their careers.

KATKO: So, Mr.

Pope, so I understand it, based on your proposal, that would make it solvent going forward?

POPE: It would.

So, you would have essentially a net payroll tax of 2% for people who elected for this option for a flat benefit in retirement, and then for people who chose to basically maintain the status quo, they would face the 3-percentage-point increase in the payroll tax, which is basically the amount that is required to keep the current benefit.

KATKO: Mr.

Hishta, what's your thoughts on that, and do you have an alternative proposal?

HISHTA: I would say, first of all, you need to understand the politics of the situation, and that's something that would never fly in Washington, D.C., right now.

Look, at the end of the day, there are ways to get creative in attempting to raise revenue for the program.

You could increase the tax max, which is, in essence, raising the cap on taxes recipients pay into Social Security.

Right now, I think it's currently around $160,000 to $170,000 a year.

And you could also remember, when the program was started, it was mainly focused on people who received W-2 wages, and nowadays, there is a lot of income through passive means and so on.

And so there are a lot of creative ways to raise additional revenue to fix that funding gap, which is going to occur in 2033.

It's only about a 20% on average funding gap for the average beneficiary.

And so I think if members of Congress on both sides of the aisle get around the table and have some conversations about this with some presidential leadership, they can get it done sooner rather than later.

KATKO: So, just so I'm clear, Mr.

Hishta, if you uncap the Social Security payments, is that, in and of itself, enough to solve the problem when you know the sources of revenue as well?

HISHTA: It would solve the problem for a couple of generations, that's for sure.

KATKO: Mr.

Pope, do you agree with that?

POPE: I think the problem that runs into is that Social Security is not the only claim on increased taxes.

We're running a gigantic deficit because of healthcare programs starting now.

Medicaid needs to be paid for-that program has doubled in size over recent decades.

Medicare is projected to grow many times faster than Social Security over the next coming decades.

And we have the compounding interest on the national debt.

So, if Social Security was the only program that we had to pay for with tax increases, that might be possible.

The problem is that we have many other programs that are also going to need to be financed.

The money, you add it together, is just not going to work.

KATKO: So, Mr.

Hishta, just can you briefly summarize the AARP's proposal or outline of what they would do to fix it?

Is that basically what you just said, or is there more to it?

HISHTA: We don't necessarily have a proposal per se, John.

We're just engaging with lawmakers across the political spectrum, talking about different options that are currently under consideration here in Washington, D.C.

That would be one of them to look at.

I think what currently is off the table is any kind of benefit cuts as it relates to raising the retirement age and things of that nature.

I mean, the Republican Party, under President Trump, has made it pretty clear that they don't want to go down that road.

So, if you look at ways to deal with that funding gap, there are multiple, again, ways to do it through different avenues to raise revenue for the program.

KATKO: So, you two have competing views, and you're not screaming and yelling at each other, you're not saying things to scare the heck out of each other.

So why is it that the politics in Washington are such that they do that?

First of all, and then second of all, how do we get past that?

And I have an idea, but I want to hear it from you.

And we can start with Mr.

Pope.

POPE: Well, I mean, neither of us is trying to win an election right now.

The existing incentive in having an election is to scare people about change, scare people about benefit cuts and tax increases, and those are the two easiest things to basically raise alarm about.

Nobody wants to pay higher taxes, and no one wants to receive lower benefits.

What I'm suggesting is really an option that gives people the choice and the responsibility.

If you want to keep the benefits coming at the current level, there are higher taxes associated with that.

If you want to keep your taxes low or reduce them, there's a benefit package that will basically be affordable at that level.

It gives people the flexibility but also the responsibility to bear the costs associated with the different types of programs that we might want to have.

KATKO: Mr.

Hishta?

HISHTA: A couple of things.

First and foremost, you have to have the public behind whatever solution you ultimately decide.

Politics is important in this conversation, and sometimes we forget that.

In order for this to happen, we need to have presidential leadership and leadership on both sides of the aisle come to the table and understand that the American people want this done.

One of the things we at AARP will continue to push is to bring folks to the table to have the conversation in order to come up with a solution before 2033.

It's a difficult proposition, but we've got to hold elected leaders accountable who are making the choices they need to make moving forward.

And as Chris said, at the end of the day, they're going to be up for reelection, and I can guarantee you this: if they do nothing, they're going to face a lot of problems at the polls come 2034.

KATKO: So, what happened in the early '80s with Reagan and Tip O'Neill was they were up against it, and what they did is they formed a bipartisan commission and basically followed a lot of the recommendations and took ideas from both sides, just like you presented here today.

Do you think that would work in today's climate?

Mr.

Hishta?

HISHTA: I think that a commission is a cop-out, John.

I think, at the end of the day, this is going to take, again, presidential leadership and congressional leadership to step up to the plate, get together, and make the tough choices they need to make.

Even if you go back and look at the 1983 process, the commission in and of itself was driven a lot by the people who were leading the commission as well.

It wasn't as Pollyanna-ish as everybody says it is.

At this point in the game, there was pure politics involved back then as well.

KATKO: Mr.

Pope, you have the last word.

POPE: Yeah, I mean, I think 1983 actually does show that you can make progress.

I think it was suddenly the real prospect that the cost lines of the program just weren't going to be sustainable very, very soon that kind of forced change.

I think the difference between the parties and what they want Social Security to do is not that huge.

So even though in election time it's easy to exaggerate the differences, I'm actually fairly optimistic that both parties ultimately want the program to do roughly the same things at its core and that they'd be able to find a solution.

KATKO: All right, gentlemen, thank you for a great conversation.

Very helpful, and we'll hope to see you again soon.

Thank you so much.

And now it's time for my take.

♪ ♪ So, I think we've shown Social Security is in big trouble-much worse trouble than it was back in 1983-and therefore, we cannot wait till the last minute, like we did back then, to try and fix it.

Now's the time to roll up your sleeves and put down the swords once and for all on this issue and get it done.

You can't scare the heck out of people if you're a Republican or a Democrat just to score political points.

It's far too important.

Tens of millions of Americans are depending on Washington to get this right, and we can get it right.

Time and again in our country, we've seemingly faced intractable problems, but we've come together as a country and fixed them in due time.

Now is the time to do it.

It may mean changes in benefits.

It may mean more taxes or less taxes-whatever-but sit down together.

There are smart people in Washington, just like we heard on the show today, and find a solution.

We owe it to the American people, and especially owe it to those of retirement age who depend on this.

So, compromise is not a dirty word.

Let's get it done.

Well, that's all for this week, folks.

To send in your comments for the show, visit WCNY.org/balancing.

For Balancing extras and exclusives, follow us on social media.

Thank you again for joining us, and remember, in the circus that is politics, there is always a Balancing Act.

I'm John Katko.

See you next time, America.

♪ ♪ On American Experience, a two-night event examining Henry Kissinger, the enigmatic and controversial power broker who shaped America's role on the world stage.

[VO: Kissinger]: To manipulate the domestic politics of another country is always an extremely complicated matter.

Nobody before us has played such an important role in American foreign policy.

ANNOUNCER: Kissinger on American Experience.

>> We are in the very midst of a revolution, a most complete, unexpected, and remarkable of any in the history of nations, objects of the most stupendous magnitude and measures in which the lives and liberties of millions yet unborn are intimately interested are now before us.

- John Adams ♪