July 18, 2014 4:12 AM
Virtually all plans to fix Social Security involve benefit cuts, and generally we caution against when the benefit cuts disportionally affect future workers.
Why do so many plans include benefit cuts? The answer is simple. Future benefit cuts are popular with policy makers because the people who are affected have no vote today. In 1983, Congress changed Social Security in such a way that the maximum tax increases and benefit cuts fell on people who were 11 and younger at the time. The problem with this approach is that these people have no vote in the discussion. Changes like the ones we made in 1983 are largely us agreeing with ourselves that our kids will get less from Social Security than we take from it ourselves.
Why is this approach a bad idea? The answer is equally simple. The people who are affected by such policies will have a vote at some point. Assuming that our children will vote to get less than we took is not a reasonable assumption for a system on which millions depend. The person who was 11 in 1983, is now 42. This audience is slightly less than 50% of voting aged Americans. Everyone of them, is expected to retire after the Trust Fund is gone. So our assumption is that these people will continue to vote for people who support using 12.4% of wages for a system that deliivers a negative return on average. We are counting on a majority of Americans to vote against their own self-interest.
The question that policy makers never consider is what will happen if the majority of people start voting for politicians who are aligned with their self-interest. Basically we haven't considered the possibility that the history of the last 100 years will repeat itself.