Millennials Hurt Most by Growth of Social Security

Increasing Social Security benefits, as proposed by moveon.org, Paul Krugman, and U.S. Senators, may offer political benefits to legislators, but it will be expensive—especially for young people.

Unless benefit increases are substantially slowed, younger workers will shoulder unprecedented cost burdens. When baby boomers began to hit the rolls in 2008, the cost of financing Social Security benefits amounted to almost 12 percent of each taxable dollar earned. Without reducing benefits, their cost will rise to 17 cents on the dollar by the mid-2030s. 

Social Security benefits have been growing steadily relative to inflation for many years. Even if the Social Security program were denied additional tax revenue, beneficiaries’ standards of living in 2035 would be nearly equivalent to what they are today. But increasing benefits by, hypothetically, 20 percent would require workers to provide over 20 percent of their taxable wages to support one federal program.

Social Security is not a savings program. Increasing Social Security benefits raises some participants’ retirement security at the expense of others. Because Social Security is financed by younger generations paying for older generations, those now entering employment can expect to lose, on net, over 4 percent of their lifetime wages through the program under current law. If current participants’ benefits are further increased, younger Americans’ net income loss through Social Security would be steeper.

Social Security benefits and costs have already risen to the point of destroying many individuals’ abilities and incentives to save. The result is further disincentive to remain in the workforce, save, and contribute to economic growth. Recent research has found that many low-income groups have no significant savings. This is the predictable result of imposing high tax burdens on those with limited incomes to support a retirement program that does no saving. Further increasing Social Security benefits would force low-income workers into reduced standards of living to favor richer beneficiaries. 

Not only would a benefit expansion render it more difficult to maintain Social Security solvency without large, economically-damaging tax increases, it would worsen many existing program inequities, depress worker living standards, and further undermine low-income individuals’ abilities and incentives to save. Though such proposals may bear a superficial political attraction, their implementation would harm an already shaky entitlement program. 

For more on this topic see Charles Blahous’ e21 article “Don’t Worsen Social Security’s Soaring Cost Problem.”