Brenton Smith

Guest columnist

Social Security is arguably the most important program that the government runs. Unfortunately, the actuaries at the Social Security Administration believe that vital program has a shortfall of $13.2 trillion, which is growing rapidly.

This imbalance stems in no small part from politicians in Washington who tend to see Social Security as a pot of money ever present to deal with an increasing range of constituent needs. Since inception, Congress has added survivor benefits, spouse benefits, ex-spouse benefits, child benefits, parent benefits, early retirement, deferred retirement, cost of living adjustment, and more. The benefits may be justified, but lawmakers have not given the cost sufficient thought.

Along these lines, Sen. Joni Ernst, R-Iowa, and Sen. Mike Lee, R-Utah, have introduced “The Cradle Act,” which would expand the program to provide benefits for parental leave. Specifically, the legislation would give new parents an option to trade a portion of their Social Security retirement benefits for benefits after the birth or adoption of a child. In exchange, recipients would agree to a higher retirement age as a means to pay for the benefits.

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According to the sponsors of the proposed legislation, this bill would give one or both parents making below $70,000 benefits which roughly equal 50 percent of their take-home income. Moreover they claim that the cost of the program is paid for by the beneficiaries who would collect lower benefits over the course of their retirement. It is all possible on paper.

Unfortunately, real life tends make the promises a little more murky. The benefits provided in this legislation are based on the existing Social Security disability formula. The benefits are unfortunately not based upon your current earnings. Checks are determined by your past earnings in a complex formula that shifts based upon your age.

To illustrate the problem, the SSA’s benefit calculator shows that someone who is 24 making $50,730 for the last two years will get roughly what Ernst and Lee claim ($1,861). On the other hand, the benefit drops to $1,432 for a similar wage earner who is a year older because the formula looks for another year of earnings to weight into the benefit calculation.

Supporters also claim that the legislation will be self-financing as Social Security generates savings on retirement benefits down the road. The risk with this type of financing is that Congress might change its mind as the consequences hit voters far in the future. The entire plan hinges upon Congress over time developing a greater sense of financial discipline.

To illustrate the possibility: Back in the 1960s, lawmakers expanded Social Security to enable those approaching retirement age to claim benefits early. They reasoned the change would be “budget neutral” because a reduction in the benefit levels would offset the greater number of checks issued. Unfortunately, this expansion was so popular over the past 20 years that lawmakers today are mulling the idea to increase Social Security benefits because checks are too small.

Early retirement is emerging as a real problem that isn’t drawing a lot of attention. Even with all of the media coverage urging seniors to defer benefits, claiming the first dollar possible remains the most popular claiming strategy. In the case of a new retiree, early retirement can cost someone who collects an average check nearly $5,000 a year for the rest of his or her life. In response, Democrats in Congress are trying to fill this hole by increasing checks by about $300 a year.

At this point, the legislation solves one problem by creating another. The money spent today will enable us to have parental leave benefits, but we are at the same time creating a bigger crisis in retirement planning for current workers. Over the next 40 years, retirement age will increase by one or maybe even two years. As a result, people aren’t sure whether they are giving up six months starting at 67 or six months starting at 69. Moreover, we are not entirely sure what savings will be generated.

In terms of politics in the present, this strategy is a no-brainer. The solution today is worth votes, and the crisis tomorrow is someone else’s problem. This is the strategy that has put Social Security in the financial mess that it is today.

We need to stop looking at Social Security as the one-stop cure-all for the needs of the nation.

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Brenton Smith writes on the issue of Social Security reform nationally with work appearing in Forbes, MarketWatch, TheHill.com, and regional media across the country. He can be reached at JoeTheEconomist@gmail.com.