Biden’s Budget Is an Assault on Social Security High taxes and crushing regulations will starve entitlement programs into insolvency. By Casey B. Mulligan
President Biden released his 2024 budget request Thursday while continuing to accuse Republicans of scheming to cut benefits for seniors. But he’s got it backward. By advancing policies that hinder the economic growth that drives prosperity, Mr. Biden and his Democratic colleagues are the ones depriving Social Security and Medicare of the hundreds of billions of dollars those programs need to remain solvent.
Economic growth has worked miracles, producing new technologies, sharply reducing world poverty, and inventing the concept of retirement—a stage of life that previous generations never enjoyed. The Biden budget’s degrowth agenda would sacrifice all that in pursuit of vaguely defined social and environmental goals. It’s no coincidence that real wages have fallen during his administration while real investment returns have turned negative. Retirement savings plans have lost $4 trillion in value since Mr. Biden’s inauguration, according to a report by the Committee to Unleash Prosperity.
My own research on the Biden agenda’s effect on Social Security and Medicare makes clear that low economic growth translates into smaller benefits for seniors. These programs give the elderly a share of the earnings of the nation’s current workers. The more people who work, and the more each worker earns, the more payroll tax revenue is available to fund Social Security and Medicare. I estimate that degrowth policies since 2020 will cumulatively reduce Medicare and Social Security tax revenue by at least $400 billion—and perhaps as much as $900 billion. The tax base will shrink even more if Mr. Biden succeeds in levying higher wealth and business taxes.
In the near term, payroll-tax revenue shortfalls hasten the day when the Social Security and Medicare trust funds run out and both political parties will be forced to consider benefit cuts. By statute, less national labor income also means lower Social Security benefits for every worker entering retirement.
Since his inauguration, Mr. Biden has largely implemented the insurance expansions he promised during the 2020 campaign. Economic regulation has proceeded vigorously. So has the administration’s energy and climate agenda. Mr. Biden’s aspirations for taxing business income through corporate and personal income taxes are still largely unattained, although we know from his budget proposal that he hasn’t surrendered on this front.
I estimate that Mr. Biden’s insurance, regulatory and tax policies as implemented will eventually combine to reduce the nation’s labor income by 5% to 6.5%, with an additional reduction in the long term due to education policies in blue states. In two years under the Biden administration, the labor market is already falling short. Real employee compensation per adult—which reflects the fraction of adults working, the number of hours they work, and the inflation-adjusted cash and fringe benefits they receive per hour of work—is 3.3% below the pre-pandemic trend. These are some of the first dividends of the degrowth policy agenda.
Of course, the pandemic resulted in an economic downturn that temporarily set the American economy back. But even if the Biden economy had attained 2% annualized growth per adult from the first quarter of 2021—a tepid rate for a normal recovery—real compensation per adult would be 2.5% above where it is now.
Entitlement programs for the elderly also depend on a labor market that stays strong into the distant future. This prospect was undermined severely by Democrats’ school policies during the pandemic. Teachers unions, together with the Centers for Disease Control and Prevention, vigorously resisted efforts to have students and teachers return to classrooms. The learning losses that resulted portend earnings losses down the road.
I estimate that remote-learning policies will reduce labor income nationally by almost 0.6% during the working lives of all students enrolled in K-12 education during the 2020-21 school year. For context, 0.6% of current Medicare and Social Security tax revenue would be $10 billion a year. Because those earnings losses—47 years’ worth for each student after reaching normal working age—are in the distant future, I discount them to the present using a 6% real annual rate. By this measure, remote-learning policies reduced prospective Medicare and Social Security tax revenue by $118 billion in present value.
The rapidly approaching depletion of the Social Security trust fund is a good reason to remember the dividends of economic growth. People of all ages benefit when taxes are low and both schools and businesses can operate without interference from bureaucrats or special interests.
Mr. Mulligan is a professor of economics at the University of Chicago and a senior fellow with the Committee to Unleash Prosperity. He served as chief economist at the White House Council of Economic Advisers, 2018-19.
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