The “ReidOut” Insolvency Debate, Part 2
In a “Latest News” post yesterday on this site, we covered a January 10 on-air debate on Social Security’s looming insolvency problem. Rep. Byron Donalds (R-FL) was called out in this debate for commenting that Social Security would be insolvent by 2035, with host Joy Reid strenuously arguing that Rep. Donalds’ assessment was incorrect. Today, in a video posted on YouTube, she doubled down (to use a phrase popular in today’s political vernacular) on her argument, explaining that even if the program’s trust fund reserves are depleted in 2035, benefits will be paid. Unfortunately, her explanation excludes a key part of the story: Yes, benefits will continue to be paid via continuing payroll tax revenue, but beneficiaries would face an across-the-board cut of between 20% and 25%.
The variable in this debate is how one defines the term “insolvent.” Using the IRS definition of an insolvent taxpayer (A taxpayer is insolvent when his or her total liabilities exceed his or her total assets.), the term does adequately describe the predicament projected for Social Security in 2035. At that point, absent corrective attention by Congress, the program’s total liabilities (the scheduled benefits earned by the workers who have paid into the program during their working lives) will exceed the program’s available assets (the continuing payroll tax revenue). As Ms. Reid points out, Social Security is not projected to be bankrupt (Rep. Donalds did not say that it would be), but so many folks tend to conflate the terms “insolvency” and “bankruptcy,” causing a hysterical magnification of the problem. And yes, the projected inability to pay promised benefits is indeed a problem.