Had we adopted proposals from the 1990s, the trust fund would be richer today

by Steve Levy

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When the Social Security system was established in 1935, it had 42 workers for every retiree. Today, the ratio is a mere 2-to-3. At this rate, the system must reduce benefits to every retiree by about 21% in 2033 if nothing is done to shore it up.

Proposed fixes include significant tax increases on all taxpayers, raising the retirement age and further taxing Social Security recipients. Each of these options would be painful.

There is a better way.

For decades, some analysts have recommended allowing for investment of at least some Social Security funds in the stock market, as opposed to very conservative Treasury notes. Unfortunately, this suggestion has dead-ended, primarily because of the irrational fear that any investment in equities would inject too much risk into the stability of the Social Security trust funds.

Even officials supporting investment diversity hold back, fearing claims from the opposition party or media that the pro-investment officials are seeking to risk or cut the Social Security payments for millions of Americans.

A quick analysis clearly proves that these concerns about system losses resulting from stock investments are totally unfounded. In fact, it is shocking how much money has been lost to the system over the past 20 years because of the overly cautious investment schemes propagated by those managing the Social Security trust funds.

Despite the market’s most volatile times, such as the aftermath of 9/11, the pandemic or the real estate crash of 2007, had the trust funds been invested in a Standard & Poor’s index fund in 2005, they would now be flush with $6.4 trillion more than they are. Privatizing just 25% of the funds would have resulted in an additional $13,775 per person.

In 2005, the Social Security trust funds held $1.81 trillion. In 2025, the funds were at $2.8 trillion. This is an increase of 55.6%, a paltry 2.2% per annum.

Meanwhile, the Standard and Poor’s Index rose an average of 9.82% over that period. The index was 1,181 in January 2005. By January of this year, it was 5,979, an astonishing 406% increase.

There are two ways to seek greater returns through the market to strengthen the Social Security system. One mirrors that prescribed by former presidential candidate Steve Forbes, whereby younger Americans would be empowered to have greater control over the taxes they lay out for the Social Security system. Instead of all their FICA taxes going to the government, a portion could remain under the control of individuals, who could open their own 401(k)-type account that would grow over the years.

Concerns regarding a potential wipeout of the pension funds are unfounded because the money isn’t all invested or withdrawn at the same time, and the performance in a single year is not make-or-break.

Versions of this program have been successfully implemented in other nations, including Sweden and Australia. If a person began contributing to Sweden’s Premium Pension system in 2005 and invested in the default government-managed fund, their money would have grown substantially over the past 20 years, averaging about 14% annual returns. In some standout years, such as 2021, 2023 and 2024, the fund returned 31.5%, 18.4% and 27.3%, respectively.

The other option, taking a portion of the fund reserves and placing it in a stock market index fund, is not new. It was one of several recommendations proposed in a federal panel, the Social Security Advisory Council, in 1996.

Had we adopted those proposals in the 1990s, or even in 2005, as suggested, the trust fund would have been far richer today, alleviating the need for panic.

Since then, the reserves have slowly been depleting. They peaked at approximately $2.908 trillion in 2020, declining to approximately $2.721 trillion in 2024, a depletion of approximately $187 billion in just four years. Consequently, immediate action is required.

New York’s flush pension fund has grown exponentially more than the Social Security fund. That’s because its sole fiduciary, the state comptroller, diversifies the fund’s investments. Bonds constitute a mere 22.07% of the overall assets, and real estate investments diversify the portfolio even more. Despite investing 57% of the fund in equities, the state has never reached a point where the fund was in jeopardy. The rates of return for the New York Pension System from 2005 to 2025 were relatively healthy, at 4.2%, as opposed to 2.2% from Social Security. In 2023-2024, the fund brought in a more than 11% return.

A typical portfolio adviser will recommend that senior citizens place the majority of their money in safe bonds but have at least some funds in higher-growth options to expand the aggregate while hedging against downturns. That’s the route our government should take. Even if we had started with just 25% of the trust funds invested in a Standard and Poor’s index, it would solve many of the problems plaguing the system.

Steve Levy is executive director of the Center for Cost Effective Government, a fiscally conservative think tank. He served as executive of Suffolk County, New York, as a New York State Assembly member and as host of “The Steve Levy Radio Show.”

By Steve Levy Friday, 03 January 2025 12:42 PM EST Current | Bio | Archive

The most recent budget extension drama played out on Capitol Hill highlighted the continued controversy revolving around the debt ceiling.

If we as a nation are to solve our enormous debt and spending dilemma, we must first understand what the debt ceiling is — and is not.

The mainstream media and elected officials on both sides of the political aisle have often given the public a false impression of what the debt ceiling votes actually do.

The common misconception is that a vote to increase the debt ceiling is a vote to spend more tax dollars. It is not.

The Department of Treasury website confirms this quite clearly:

The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that congresses and presidents of both parties have made in the past. Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations — an unprecedented event in American history that would precipitate another financial crisis and threaten jobs and savings of everyday Americans.

In other words, voting to raise the debt ceiling does NOT increase spending, and voting against it does NOT rescind any spending.

The spending was already authorized by previous votes of Congress.

A default on paying our debt would obliterate our standing as the safest currency in the world. That would have worldwide investors running for the exits and taking their money out of American markets and institutions.

So why has there been so much controversy about the debt ceiling in the past? It’s because many members of Congress fear that a vote to raise the debt limit would be interpreted by the folks back home as voting for more reckless spending.

And there are others, less concerned about the fiscal imagery, who wanted to hold their vote out as leverage to modify the budget to their liking.

President-elect Donald Trump preferred the debt ceiling matter be pushed out several years for two reasons.

First, he knew that, come March, the issue would be in his lap, and he is reluctant to give the appearance that he would be spending recklessly by supporting the raising of the debt limit (something he understands has to be done for the government to continue to function and to prevent America’s default).

But he was also leery of giving Democrats leverage to hold out on extending the debt ceiling next year unless they get their goodies included within the budget.

If the debt ceiling is handled through the reconciliation process, which is doable, that would only require 50 votes in the Senate, rather than the traditional 60 that relates to nonfiscal matters. Doing the math, the Republicans would not need Democratic votes, but that’s assuming the Republicans can hold together. No guarantee.

Trump loathes the optics of having the GOP extend the ceiling while the loyal opposition votes a resounding no, all the while seeking to label their conservative counterparts — who railed against raising the ceiling in the past — as hypocrites.

Democrats are split on the issue. Some of the biggest spenders, such as Elizabeth Warren, want to do away with the ceiling altogether so that they can continue to spend like drunken sailors without giving the other side leverage to force cuts.

Yet, other Democrats want to maintain the debt ceiling vote so that they themselves can hold out in order to get more spending into the budget when the Republicans take control of both houses and the presidency.

Debt ceilings have been meaningless since Congress pays no heed to them when they’re preparing their spending plans. They would spend whatever they wanted, knowing that down the line they would be forced to expand the debt ceiling to whatever level was needed to accommodate the increased spending they authorized months earlier.

So why continue to go through the charade every year? Both Trump and Warren are correct in wishing to push out these debt ceiling votes far out into the future, though for different reasons.

Ultimately, it’s the votes that are cast in developing the annual budget that count. Thus, if conservatives want spending controlled, the answer lies in enacting a balanced budget amendment.

Every state and local government around the country by law must balance their budget. The federal government is the only public entity that does not. That should end immediately.

As noted in our Center for Cost Effective Government’s white paper on spending caps, these spending limitations work. They force prioritization.

The fiscal hawks within the Republican caucus should seek the ultimate deal of getting rid of the debt limit charade by linking it to a requirement that a balanced budget amendment be enacted.

Elon Musk and Vivek Ramaswami may come up with buckets full of logical spending cuts, but they don’t have the authority to implement them. A balanced budget requirement would force many of those cuts to be implemented by a recalcitrant big spending Congress.

End the political games on gerrymandering.

Our center has long criticized both major parties for the political games they play in practicing gerrymandering, the politically motivated redrawing of legislative district lines. 

10/12/20 Islip minorities finally to get some representation. Last week it was announced that the town of Islip has settled the lawsuit brought by a number of citizen based groups, seeking to replace the at large system of electing council people to a councilmanic system. The new councilmanic system will elect members from one of four council districts throughout the town. Our center has long supported this type of system that is closest to the people. The settlement is a victory for those who have lamented the fact that Hispanics, who comprise 1/3 of the town’s 300,000 people, have never had a representative on the town board. Think of how things might’ve been different had there been a specific representative from the areas of Brentwood and Central Islip when dumping was occurring in their parks. Like a county legislator’s district, a council district is small enough for an underfunded candidate to get his or her message out. At large systems require candidates to be more beholden to party leaders and special interests to get their funding for the campaign. A candidate needs four times the amount of money to communicate with voters in an at-large system than in a council district. It’s one of the reasons why all of the present people on the council reside south of Sunrise Highway and not one is a person of color. The representatives from these areas may be hard-working and well-meaning, but isn’t it time that folks from other parts of the town, especially the traditionally underserved areas, have someone from their neighborhood providing input? Kudos to attorney Fred Brewington, who brought this suit. He was a former guest speaker at our Center. The best democracy is that which is closest to the people.