Susan Pendergrass speaks with Andrew G. Biggs, senior fellow at the American Enterprise Institute, about the Social Security trustees’ latest report and what it means for the program’s future. They discuss the projected 2032 insolvency of the retirement trust fund, why the trustees’ birth rate assumptions may be too optimistic, the proposed Moreno-Warren plan to eliminate the payroll tax ceiling, the Cassidy-Kaine plan, and why pension experts oppose it, what would actually happen if the trust fund ran out, and more.

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Episode Transcript

Susan Pendergrass (00:00):
I feel fortunate to have grabbed some of your time. Andrew Biggs from the American Enterprise Institute, I appreciate you coming on to talk to us. Social security has been nothing but in the news recently, and you know more than anyone else. So thank you for taking the time.

Andrew Biggs (00:14):
That’s why I’m so cheerful. The more you know about Social Security, the happier you are. But thanks for having me, Susan. It has been busy. I’m really happy to be with you today.

Susan Pendergrass (00:16):
I’m in my sixties. I see something about Social Security running out of money and I pay attention. So just to bring us all up to speed: in the last week, there was a news flash that Social Security is going to run out of money sooner. What does it really mean?

Andrew Biggs (00:39):
Every year the Social Security trustees, which is mostly members of the cabinet, the Secretary of the Treasury, the Social Security Commissioner, and so on, come out with a report projecting the program’s financial health, both in the short term and the long term. That happens every year, and it’s been getting worse every year. In this year’s report, they projected that the retirement trust fund will go insolvent, or run out of money, in 2032. They also projected a significantly larger long-term funding gap in the years thereafter, and this is worth explaining.

When the trust fund runs out, it doesn’t mean there’s zero money to pay benefits. As long as we’re paying a trillion dollars a year in payroll taxes, there will be money to pay benefits. But when the trust fund runs out, it means benefits will be cut, and their projection is somewhere around 22%. The size of that long-term funding gap dictates how big the cuts are going to be in the years thereafter. The trustees lowered their projections for birth rates, and they found that the One Big Beautiful Bill has worsened Social Security’s finances. A variety of things made this long-term funding gap worse. It’s really hard to paint a happy picture. The trust fund can be running out in about six years, and the funding gap and the benefit cuts in years thereafter are going to be larger. It’s a sobering picture.

Susan Pendergrass (02:16):
I’m not trying to pile on, but I think I saw that they extended the time when they expect birth rates to bounce back. Is that true? Because I have not seen anything anywhere, and I’ve spoken to some demographers, to suggest birth rates are ever going to bounce back.

Andrew Biggs (02:35):
Here’s the interesting thing. If you look at the Congressional Budget Office or the US Census Bureau, right now the fertility rate is about 1.6 children per woman on average, and both the CBO and the Census project that’s going to remain pretty much steady, declining a little bit over coming decades. Social Security had a very different picture. As of last year, they thought the birth rate, which is 1.6 now, was going to immediately start rising and go back up to 1.9 children per woman in the next several decades. That makes Social Security’s finances better. More kids being born means more people paying into the system. What they did in this year’s report is moderate a bit on fertility. They said, okay, it’s not going to rise back to 1.9, it’ll rise back to 1.75. So they are still over-optimistic. I’ve talked to some demographers and economists who’ve really focused on the birth rate, and they described the trustees’ assumptions as, quote, fanciful, meaning they just weren’t plausible. Now they’re somewhat more plausible, but they still tend

Susan Pendergrass (03:32):
Okay.

Andrew Biggs (03:48):
to be more optimistic than other agencies. And to me, frankly, this is a concern. You really want the people who are the scorekeepers, the umpires, to be playing it as straight as they possibly can. We know that these guesses are going to be wrong because this stuff is impossible to predict with certainty, but most demographers think the best guess is we’ll stay around 1.6 going forward. You’ve seen a decline, and a good predictor of birth rates is religiosity, the level of religious belief in a country. The US has typically been much more religious than Western Europe, and that’s played into fertility. There has been a big decline in religious belief, particularly among younger Americans, along with all the other pessimism you see among younger people. When people are pessimistic, they tend not to have a lot of kids. So the best guess is we’re going to stay about where we are.

I wrote something the other day saying the bad news in this trustees report is even worse than last year’s, but it could have been even worse. They project a long-term funding gap above 4.4 percent of payroll. What that means is if you took the 12.4% payroll tax today and raised it immediately and permanently by 4.4 percentage points, from 12.4 to 16.8, that would in theory keep the trust fund solvent for 75 years. But a better guess would be a funding gap of around 4.8 to 5 percent. This is real money. For years, people on the left have said, well, okay, we know Social Security has a solvency problem, but it’s a manageable issue. They were saying that when the funding gap was 2% of payroll. Now you’re looking at four to five percent. That’s a lot of money, at a time when a lot of other things are making claims on the budget. We have some difficult choices to make and we really have to start thinking hard about this.

Susan Pendergrass (06:09):
Okay, so what about this idea that’s been floated in the last week of getting rid of the payroll cap? First of all, explain the payroll cap, and then this idea of getting rid of it.

Andrew Biggs (06:17):
Sure. Social Security has a 12.4% payroll tax, half paid by you and half paid by your employer. That applies only to wages up to $184,500. That’s called the payroll tax ceiling, or the tax max. That dollar figure goes up every year, but this year it’s $184,000. You only pay taxes on those wages, and you also earn benefits only on those wages. People say, well, Bill Gates doesn’t pay more taxes than that. But he doesn’t earn any benefits either. So you’re capping both the taxes and the benefits.

To fast forward a little bit: there’s an op-ed in the Washington Post this week from Senator Bernie Moreno, a Republican from Ohio, and Elizabeth Warren, a Democrat from Massachusetts. They say it’s just common sense to eliminate that cap and tax all earnings for Social Security. The interesting thing is how uncommon that would actually be. Our payroll tax ceiling is $184,000. Almost every other country has a ceiling on their payroll taxes for their pension system, and in almost every other country that ceiling is lower. In Canada, you only pay taxes and earn benefits up to around $60,000 in earnings. In the UK it’s about $70,000. In Germany it’s about $70,000. We are already an outlier for how high up the income ladder we tax people. To eliminate the cap entirely is a big deal. It’s effectively a 12 percentage point increase in the top marginal tax rate. I pulled an example of somebody living in New York City. A high-income person already pays 37% in federal income taxes, plus regular Medicare taxes, the additional Medicare tax, state taxes, and city taxes. If you add another 12 percentage points on top of that, their marginal tax rate would be in the mid-60s. And that’s before we’ve fixed Medicare or done anything else. The federal budget is still broke, and you’ve taxed these people as high as you possibly can. So these things that look like common sense, why don’t we just tax everybody,

Susan Pendergrass (08:37):
Right, right.

Andrew Biggs (08:46):
look, there are reasons for that.

Susan Pendergrass (08:49):
And were they suggesting that if I make $300,000 and I pay my 6.2 percent, totaling 12.4 with my employer, on my entire salary, that my Social Security benefit one day would be higher? Are they talking about capping the benefit or just getting rid of the cap on contributions?

Andrew Biggs (09:06):
They haven’t been very specific. They say Social Security would continue to be an earned benefit, which kind of implies you would continue to earn benefits on the additional taxes you would pay. Let’s say if we uncap the payroll tax and base your taxes on your total earnings, you’d also base your benefits on your total earnings. What you get then is, okay, you’re getting all this money from people in the short term, but you have to pay them higher benefits in the long term. That offsets some of the savings. And this morning I was running some numbers looking back to the 1970s. We had a huge run-up in benefit levels from Social Security in the 1970s. The benefit formula we have today is not the one FDR invented. It really happened in the 1970s, where they jacked up benefits in a really foolish way, and then to help pay for it, they increased the payroll tax ceiling. Right now you pay taxes on earnings up to $180,000. If we had just kept the tax max from 1970 and indexed it to wages, it would have been only $95,000. So they essentially doubled the wages on which you pay Social Security taxes. But what happens is they also doubled the wages on which people earn benefits. I’ve highlighted the point that if you have a high-income

Susan Pendergrass (10:38):
Mm-hmm.

Andrew Biggs (10:43):
couple retiring today, they could get almost $100,000 in total benefits, which is absurd. There’s no reason a government program should be paying anybody that amount. If you want that kind of income in retirement, you save more in your 401k. It’s better for you, better for the economy. But it was a result of this short-term step they took in the 70s. They said, hey, we raised benefits too high, let’s jack up the tax max. And they didn’t worry about the fact that in the future you’d have to pay benefits on that. Well, the future is today.

Susan Pendergrass (11:05):
Okay.

Andrew Biggs (11:13):
Now we’re broke again, we need extra money again, and these guys say, well let’s just jack up the tax max. But then you’ll pay extra benefits in the future. It becomes this chasing-your-tail kind of thing.

Susan Pendergrass (11:16):
Yeah. Yeah.

Andrew Biggs (11:25):
And the problem when you do it is there’s no country on earth paying $100,000 a year from a social insurance program, except for us. And the reason we do is these stupid historical decisions. If you’ve got this high-income couple in the US retiring today, they can get almost $100,000 from Social Security. If they lived in Canada, they’d get like $35,000. And that’s perfectly fine. Nobody’s starving to death in Canada in retirement. They just save more on their own.

Susan Pendergrass (11:35):
I’ll say.

Andrew Biggs (11:55):
The irony is that we think of ourselves as a free-market, small-government country, and our Social Security program is enormous, primarily because we’re paying benefits to people that other countries say, yeah, we don’t need to pay benefits to these guys.

Susan Pendergrass (12:11):
And yet people say, I put my money in, I get my money out.

Andrew Biggs (12:14):
Yeah, and I understand it. When I say we shouldn’t be paying $100,000 a year to a high-income couple, you get the email saying, well, I paid in. And if you paid in, you feel you have this moral claim on benefits. The problem is Social Security is still broke. We still need higher taxes or lower benefits. The idea that you’re just going to get your full benefits with the taxes you paid doesn’t work because the system can’t afford to do it. So you have to make the choice: do I want to pay higher taxes or get lower benefits? I’ve got to pick my poison. Most high-income people would prefer to get lower benefits. They care more about their taxes than their benefits. But people are still living in this dream world where this system, which is $30 trillion in the hole, is somehow going to pay them everything they’ve been promised and just screw somebody else. Everybody thinks they’re the guy who’s going to get everything and somebody else is going to get screwed.

Susan Pendergrass (13:14):
Yeah. I definitely hear people saying today, maybe I should go ahead and take it early and then I’ll get grandfathered in and my benefits won’t get lowered.

Andrew Biggs (13:26):
It probably won’t make a difference. In general, the Social Security benefit formula works based on your birth cohort, the year in which you’re born, not really the year in which you claim benefits. And people who are going to do Social Security reform understand the incentives. They don’t want to make it easy for people to game the system. So Social Security reform will probably work itself out in such a way that

Susan Pendergrass (13:42):
Right.

Andrew Biggs (14:03):
you can’t get some big advantage by claiming early. I could think of some conceivable possibilities, but I still would not encourage people to claim early.

Susan Pendergrass (14:14):
Okay, I want to talk about two more things I read in the last week. One was a letter from Tim Kaine about his idea with Senator Cassidy. What’s that idea for fixing it?

Andrew Biggs (14:24):
The interesting thing is people say Social Security reform has to be bipartisan. So we have two bipartisan ideas. We have Moreno and Elizabeth Warren, a Republican and a Democrat. They’ve got one idea, eliminating the payroll tax ceiling.

Susan Pendergrass (14:39):
Third rail.

Andrew Biggs (14:49):
Cassidy, a Republican from Louisiana, and Tim Kaine, a Democrat from Virginia, they’ve got a bipartisan plan. And guess what? Their plan is also terrible. If there’s any lesson from this, it’s that bipartisan doesn’t mean good.

Susan Pendergrass (15:00):
Bipartisanly terrible.

Andrew Biggs (15:04):
Yeah. Look, ultimately Social Security reform is going to have to be bipartisan, given the way the political system works. On the other hand, there is some lesson that if both Republicans and Democrats can agree on something, it might be a terrible idea. With Cassidy and Kaine, they are explicitly, and Cassidy said this, solving a political problem. The political problem is that neither Republicans nor Democrats want to vote for either tax increases or benefit cuts. You’d think Democrats want to raise your taxes and Republicans want to cut your benefits. The reality is they don’t want to do either of those things because they realize both are politically unpopular, which is why we’ve gone 40 years literally doing nothing. So their solution is that we don’t have to make these difficult votes. Instead, the federal government will borrow about $2 trillion, invest that money

Susan Pendergrass (16:02):
Tough.

Andrew Biggs (16:04):
in stocks and private equity, high-risk, high-return stuff. Then they claim they’re going to hold this fund for 75 years so it can build up value. In the meantime, when Social Security’s trust fund runs out in 2032, the federal government will borrow against the assumed gains on this investment fund.

Susan Pendergrass (16:06):
Right. Mm-hmm.

Andrew Biggs (16:29):
They say the borrowing will be at a lower rate because it’s the federal government. And they say after 75 years, all the gains in this investment fund will pay back all the borrowing and we’re all good. And let me count the ways there are problems with that. If you work at the state level,

Susan Pendergrass (16:45):
It’s just kicking the can.

Andrew Biggs (16:52):
state-based think tanks almost know more about this than federal people. A lot of underfunded state pension systems do things called pension obligation bonds. Their pension system is underfunded, they don’t want to raise contributions or cut benefits, so they borrow and invest in the stock market and hope it works. The pension obligation bond is the hallmark of a poorly funded, poorly run pension system. Think New Jersey, Illinois, things like that.

Susan Pendergrass (17:21):
Yeah.

Andrew Biggs (17:23):
There’s a national group of state budget officers that has come out and basically said as an institution, don’t do this. Borrowing for your pension is a bad idea. So it really is fitting for the times that the Cassidy-Kaine plan says, let’s take this worst idea from state and local government

Susan Pendergrass (17:45):
Yeah.

Andrew Biggs (17:47):
employee pensions, which has been condemned as bad practice, and put it on steroids and do that for Social Security. And what it really gets to is they just don’t understand the finances of it. And to be frank, they won’t listen. They have talked to every pension expert I know, and this Social Security world is pretty small. We all know each other on both sides. We may not agree on everything. Literally every pension expert I know says this is a terrible idea.

Susan Pendergrass (17:54):
Yeah.

Andrew Biggs (18:17):
But their political considerations are more important than policy, and that’s the problem with all of them.

Susan Pendergrass (18:24):
I mean, it feels free. They’re basically saying it’s like a timeshare. It just feels free right now. We just borrow the money. Okay, so

Andrew Biggs (18:31):
It’s been pointed out to them that if you can fund Social Security this way, you could fund the entire federal government this way and never collect any taxes. At one point Senator Cassidy was quoted in a newspaper article saying, well, yeah, sure, in theory you could. And I’m like, if something implies there’s a free money machine, maybe you need to question your assumptions.

Susan Pendergrass (18:38):
Sure. Okay.

Andrew Biggs (18:54):
I could give you a whole variety of reasons why this doesn’t work, but one macro point that’s come to me: I’ve been doing Social Security for a long time. I worked in the Bush administration in 2005 when they tried and failed to do Social Security reform. One of the problems we face today is that your elected officials understand Social Security policy much less well than they did 20 years ago. They just don’t understand how the system works. Going back to the Moreno-Warren idea of applying the payroll tax to all earnings,

Susan Pendergrass (19:22):
Yeah.

Andrew Biggs (19:37):
okay, you’re adding 12 percentage points to your top tax rate. There’s a reason Sweden and France and others don’t do this anymore. They used to have incredibly high tax rates. They don’t now. We would end up in many cases with a higher tax rate than most European countries. We have some philosophical dedication to small government and things like that. They don’t. And so if they’re not doing it,

Susan Pendergrass (19:43):
Yes. Yeah, yeah.

Andrew Biggs (20:02):
it’s because there’s a practical reason this isn’t a good idea. The same applies to wealth taxes. That’s been tried in Europe. They’re like, yeah, we’re not doing that anymore because it doesn’t work. But your average senator now

Susan Pendergrass (20:14):
It is happening around the country, the billionaire tax. What happens in 2032 if no one is either brave enough or smart enough to take this on in the next six years?

Andrew Biggs (20:17):
They’re just not aware of these policy issues, and that’s a real problem. It’s like having a guy fix your car who doesn’t know how to fix cars. 2032 is the date. If you have a recession, it might be 2031. It’s not certain, but it is certain it’s happening soon.

Susan Pendergrass (20:47):
Yeah. Okay.

Andrew Biggs (20:53):
There’s a literal reading of the law, which is that Social Security can’t pay out benefits it doesn’t have dedicated resources for. Once the trust fund runs out, the only dedicated resources are mostly the payroll tax, plus a little bit of money from income taxes levied on retirement benefits. And those were cut as part of the One Big Beautiful Bill. So if the trust fund runs out, they’d have to rely on the money they have on hand, which implies around a 22% benefit cut.

A lot of times people assume that benefit cut has to be across the board. If you did it that way, you’d throw a lot of people into poverty. I did some work a year or so ago with a lawyer in DC named Kristen Shapiro, and what we found is that the legal precedent shows the executive branch, meaning the president working through the Social Security Commissioner, would have some discretion. What we found is you could maintain full benefits for about 50% of people, the poorest 50% of seniors, and then cap benefits above that. If you cap the maximum benefit at about $24,000 per year for a single person or $48,000 for a couple, that is enough to make Social Security solid without raising taxes. So the point is simply you have some discretion.

The reality is Congress isn’t going to allow big benefit cuts, for political reasons. On the other hand, are they willing to have the size of tax increases needed, all in one go, to keep Social Security paying full benefits? I don’t think they want that either. So the reality is probably they’re going to borrow a lot of the money. And that’s where you get to the issue of how much more borrowing the financial markets will swallow. We effectively borrow from the public to repay the Social Security Trust Fund, but there’s an end to that. You say, okay, 2032, we have to do something. We have to raise taxes or cut benefits. If in 2032 the stated policy of the federal government is, well, we’re just going to keep borrowing to pay Social Security even though we have no prospect of paying it back, you wouldn’t blame some big market players for saying, yeah, I’m out, because you don’t want to lend money at low interest rates to someone who says they can’t pay it back. Then you start getting a couple of things. One is more federal borrowing squeezes out capital in the rest of the economy, and so interest rates naturally rise.

Susan Pendergrass (23:18):
Right.

Andrew Biggs (23:31):
But then there’s a second element: if you’re afraid the federal government can’t pay you back, over and above that natural increase in the interest rate, you’d apply a risk premium to treasury debt. You’d say, look, Treasury is not this rock-solid investment anymore. It’s more like a junk bond, or like borrowing from Illinois, and you make them pay a premium. That’s going to drive up

Susan Pendergrass (23:43):
US government borrowing. Yeah, yeah, yeah.

Andrew Biggs (24:01):
interest rates, and that makes it tougher not just for the federal government but for everybody. If you want to buy a car or a house, all your interest rates rise. There’s also going to be real temptation to inflate away the debt. The federal government doesn’t want to default on its debt, but

Susan Pendergrass (24:24):
Yeah, yeah.

Andrew Biggs (24:25):
historically the way you deal with this is inflation. Think about all the debt we took on during COVID, shoveling money out the door to everybody, and then we had massive inflation after it. A lot of those people who bought treasury debt didn’t get a good deal, because if you get 20% inflation on

Susan Pendergrass (24:34):
Absolutely. Yeah.

Andrew Biggs (24:47):
a treasury bond with a nominal fixed interest rate, that’s a real problem. So inflation becomes increasingly tempting. You look at this scenario and you’re like, can’t anybody here play this game? Every other country is not going bankrupt. We just have to do what they do.

Susan Pendergrass (24:51):
Yeah, yeah. So could we, if we really got our heads around it and started today or next year, incrementally raise the 12.4%, or incrementally get people used to lower benefits after a certain income or wealth level?

Andrew Biggs (25:18):
Sure. Yes. The way I think about it, there are two ways people think about it: the wrong way and my way. The wrong way is, let’s just pick from this menu of options to make Social Security solvent. We can raise the payroll tax a bit, raise the retirement age a bit, cut cost-of-living adjustments a bit, raise the tax cap a bit, and do these things until the system is solvent.

Susan Pendergrass (25:34):
Yes. Yeah.

Andrew Biggs (25:54):
That’ll get you a solvent program, but it won’t be a program that particularly works very well or is good for the economy. A more effective way is to ask, what do we want this system to do? If you talk about Social Security reform, what you hear is that it’s a social insurance program, a safety net, an anti-poverty program. Okay, it has to do that. And that part is really very cheap, because we don’t literally have that many poor seniors, their benefits aren’t very high, and it’s not a problem to maintain benefits for low-income seniors. When you ask what Social Security should do, nobody is saying we need to be paying high-income seniors $100,000 a year. There’s no public purpose for it. Nobody thought it out in advance. It was simply an unintended consequence. So if you’ve got things that are really costing a lot of money and have no public purpose, and those people can save for retirement on their own, you start scaling that back. The distinction I’m making is between policy changes simply for the purposes of keeping Social Security solvent, and policy changes for the purpose of making Social Security do what it needs to do, the real public purpose, and not doing things that serve no public purpose. My point is the things I’m talking about are things you should do whether Social Security is insolvent or not.

I’ll give you an example: Australia’s retirement system. Australia is a lot like us, not particularly more conservative or liberal, just sort of normal. Their Social Security program essentially is targeted at eliminating poverty in old age. It’s actually a better safety net than Social Security provides, but the benefits decline down to zero once you get above the poverty level. And to help people above that level save for retirement, everybody is enrolled in a 401k-type account. What that says is, if everybody’s participating in retirement plans as they should, the government’s job becomes easier. Their Social Security system costs about two percent of GDP. Ours costs about six percent. It’s a third as costly, provides a better safety net, and it comes because they’re actually thinking about what they’re doing.

Susan Pendergrass (28:18):
Mm-hmm.

Andrew Biggs (28:26):
We’re literally not thinking about what we’re doing. There’s a saying in business: the worst reason to do something is because we’re already doing it. That is literally how Social Security policymaking works. Nobody knows why our benefit formula is what it is or why the tax max is what it is. It’s all just stuff we inherited from the 1970s from people who were not in any way thinking clearly about what they were doing. It was people in the 70s trying to win elections, and we end up with the bag.

Susan Pendergrass (28:52):
Speaking of 2005, there was an attempt to offload a small portion of people’s contributions into the market, right? That failed.

Andrew Biggs (29:09):
That was the Bush proposal. I was in the White House then, kind of in a number-cruncher role, so I knew that stuff pretty well. I did a lot of events with President Bush around the country. When we came up on the 20th anniversary of Bush’s proposal in 2025, I started thinking to myself, what if his plan had passed? What would have happened? So I built a model. Back then they were saying, okay, you’re going to have some reductions in traditional Social Security benefits for middle and high-income people, and then you’re going to have a personal account where you can invest part of your existing payroll tax in stocks and bonds. The total benefit you get at retirement is a combination of those two. People were speculating. Well, we don’t know what the stock market’s going to do. But 20 years later, we’ve got some data, so let’s just see what happened. The results were that for people

Susan Pendergrass (30:01):
Now we do.

Andrew Biggs (30:07):
retiring today, low and middle-income people would have had higher total benefits by a little bit. The very highest-income people, their benefits would be down by a couple percent because the cuts to their traditional benefits would be larger than the gains from their personal account. But even they would be fine; it’s not a big deal. Going forward, it looked like people would do a little bit better with the Bush plan than with the traditional system. But here’s the important thing: the traditional system is broke. We just talked about how it goes broke in 2032, with huge deficits. The Bush proposal wouldn’t have made Social Security totally solvent, but it would have addressed half or two-thirds of the long-term funding gap. So you’d get a system that would have paid you benefits around the same as, or maybe a little bit better than, Social Security, but would be in much more solid financial shape. Today the times are different, and I don’t think personal accounts are really viable. But the point is, if they had done something back then, everything could be easier today. But members of

Congress were just too afraid. Republicans were afraid of taking the political hit. For Democrats, it was too tempting to give the political hit. They knew they had to do something, but they couldn’t swallow hard and say, look, let’s just go in on this thing together. They didn’t want to give Bush the win because by that point Iraq was going badly and they really didn’t like him. So they beat him up. But the problem is Bush served his term and is happily retired in Texas. The people who really got screwed were the ones who depend on Social Security, because we didn’t fix it. And you just hope that’s not what we do again.

Susan Pendergrass (31:42):
Yeah. Somebody not us in 2045 could be having the same conversation, right? Like, if only in 2025 or 2026 we’d gotten serious. And I do think people mix up the trust fund with the whole program. A lot of people think all of Social Security is going to be bankrupt in six years, versus the reality that we’re still taking in a trillion dollars, we just need about 22% more than what we’re taking in.

Andrew Biggs (32:14):
Yeah. If you go back 20 or 25 years, there were all these arguments about whether the trust fund is real or fair or whatever. The trust fund is essentially IOUs written from one side of the government to the other. I thought at the time the trust fund is not real in an economic sense. It doesn’t make it easier for the government to pay Social Security benefits. It is a pledge that we will pay them, but it doesn’t make it easier to pay them. But here’s the interesting thing:

Susan Pendergrass (32:25):
Right. Al Gore. The lock box.

Andrew Biggs (32:50):
if having a trust fund doesn’t make it easier to pay benefits, then not having a trust fund doesn’t make it harder. The trust fund runs out, we still have taxes coming in, we can still pay 80% of what is owed. If we retarget that, you can maintain the safety net. It’s not like you’re totally insolvent or broke. All those long debates over whether the trust fund is real get resolved because the trust fund itself is gone in six years. So that doesn’t matter very much anymore. But I do hope that, as you said, we’re not in 2045 looking back on a solution of just borrowing $500 billion a year or whatever it’s going to be. People in 2045, when the federal government is bankrupt, the dollar is dropping, and all these financial crisis things we think only happen to other countries are happening to us, they would look back and say, I wish those people were more responsible. The Social Security problem, in a sense, if we went back 25 or 30 years ago, was a manageable problem. The real issue is not the demographics or the benefit growth or whatever. The real issue is just poor stewardship of this program by Congress and respective presidents. It is absolutely a governance problem. It is not a problem of economic or demographic fundamentals. All of that can be handled.

Susan Pendergrass (34:19):
Everyone wants to be Santa Claus, right? No one wants to be the Grinch.

Andrew Biggs (34:22):
It’s very true, but leadership is about giving people bad news. Good news kind of tells itself. Bad news has to be told and people have to be convinced that this is going to hurt, but we’ve got to do it. And we just didn’t have the willingness. President Clinton in the late nineties tried to do some stuff, but he didn’t deliver much bad news because we had surpluses. President Bush was willing to tell people, okay, look, you’re not going to get every penny you’ve been promised. Beyond that, the level of leadership has been very poor.

Susan Pendergrass (35:01):
Hasn’t been good. All right, well, next year when the trustees report comes out, come back and give us more bad news.

Andrew Biggs (35:09):
Yeah, until then, things are looking up. But no, it’s something people want to be aware of, and I think that’s the key thing.

Susan Pendergrass (35:13):
Well, I think one of the more important things you said is that no one understands it. People are upset and arguing over something they don’t understand the mechanics of. I do know people who think they have an account with their name on it that their Social Security taxes went into, and they’re just going to start taking the money out.

Andrew Biggs (35:23):
I have some bad news for that. Your taxes go into Social Security and go straight out the door to pay for your grandmother’s benefits. If you want to know where your taxes are, they’re in your grandmother’s bank account. So go ask her.

Susan Pendergrass (35:45):
That’s right. That’s right. All right, thank you so much. I really appreciate the time.

Andrew Biggs (35:51):
Thank you, Susan. It’s a pleasure to be with you.

Produced by Show-Me Opportunity

The post The Social Security Crisis Is Worse Than You Think with Andrew G. Biggs appeared first on Show-Me Institute.

FORWARD MOVEMENT

INCOME TAX REFORM: HJRs 173 AND 174

Lawmakers approved a constitutional amendment for voter consideration that would authorize the eventual elimination of Missouri’s individual income tax. The measure represents the most significant advancement of income-tax reform in Missouri in years and ensures that the future of the state’s tax system will ultimately be decided by voters.

• Asks Missouri voters to decide whether the state should pursue eventual elimination of the individual income tax
• Allows lawmakers to modernize Missouri’s sales tax system as part of future income tax reductions
• Requires local governments receiving additional sales tax revenue to reduce other local taxes

OCCUPATIONAL LICENSING: SB 1233

Expanded opportunities for experienced professionals moving to Missouri by creating a pathway to temporary licensure for individuals with at least three years of work experience in a profession from a state that does not require a license for that occupation.

HEALTH CARE: HB 2372, HB 2974, SB 878, AND SB 1233

• Removed outdated barriers, allowing more patients to establish provider relationships remotely
• Eased restrictions on prescribing medications through telehealth
• Expanded access by allowing providers licensed through reciprocity to serve Missouri patients statewide
• Expanded pharmacist authority to test and treat for common illnesses and prescribe certain medical devices

MORE WORK TO BE DONE

Despite extensive discussion, several major policy proposals were left unresolved at the close of the 2026 legislative session.

EDUCATION REFORM

Legislation intended to address Missouri’s reading crisis passed in the House but died in the Senate. Meanwhile, 42 percent of the state’s fourth graders can barely read—the worst results in 20 years.

• Literacy reform
• A–F school accountability grades

TAX AND BUDGET REFORM

• Property tax reform
• Spending restraint

The debate over Missouri’s future did not end with the adjournment of the legislative session. Voters will soon weigh in on income tax reform, and lawmakers will return next year facing unresolved questions about education, taxation, and government spending. The most difficult reforms still lie ahead.

Download a copy of the report here.

The post 2026 Legislative Session Report appeared first on Show-Me Institute.

Here’s an overview of some of the legislation passed this session (some of which is still awaiting the governor’s signature):

$50 MILLION FOR MOSCHOLARS PROGRAM

• First public investment in the K–12 scholarship program, with $50 million approved in the state budget
• Could triple the number of students served, expanding access to private school, homeschooling, and
specialized support

TELEHEALTH AND HEALTH CARE REFORMS: SB 79

• Improves telehealth access by allowing both audio-only and audiovisual services on any HIPAAcompliant
platform
• Expands health benefit offerings by allowing certain organizations to offer health plans to members,
sometimes referred to as farm bureau or association health plans, without many of the burdensome state
and federal restrictions that apply to traditional insurance offerings

PROTECTING PROPERTY RIGHTS: HB 595 AND HB 343

• Prohibits cities and counties from requiring landlords to participate in voluntary federal housing
programs such as Section 8 housing vouchers
• Bans caps on security deposits and restrictions on tenant screening criteria like income, credit, and
criminal history

CAPITAL GAINS TAX EXEMPTION: HB 594

• Exempts 100% of long-term capital gains from Missouri state income tax for individuals
• Applies to all individual income reported as capital gains for federal tax purposes, starting tax year 2025
• Designed to encourage investment and entrepreneurship by reducing the tax burden on productive
activity

EXPANDING LICENSE PORTABILITY: SB 150

• Expands access to temporary occupational licenses across most licensed professions in Missouri by
repealing the harmful compact exemption, ensuring that more professionals moving to Missouri can
start working without unnecessary delays
• Provides expedited occupational licenses to law enforcement spouses moving to Missouri, allowing
those licensed in another state for at least one year and in good standing to receive a Missouri license
within 30 days of applying

Download a copy of the report here.

The post 2025 End of the Legislative Session Report appeared first on Show-Me Institute.

Of course, the answer is obvious if you know anything about how educator pensions work in Missouri.

Missouri’s teacher pension system creates strong incentives for educators to retire as soon as they hit their pension’s peak benefit. This doesn’t mean they’re ready to stop working; it just means that staying on the job in Missouri would financially penalize them compared to retiring and working elsewhere. This system is problematic because it pushes experienced teachers, principals, and superintendents out of Missouri’s schools when they still have a great deal to offer.

When Missouri educators retire early, they take with them years of expertise and leadership. Instead of keeping our best and most experienced educators in Missouri classrooms, our pension system encourages them to leave for neighboring states. This harms our schools and weakens the overall quality of education available to Missouri students.

To fix this, we need pension reform. We should develop a retirement system that rewards long-term service without forcing educators into an artificial retirement timeline. Instead of a system that penalizes continued work, we should create one that allows educators to gradually phase into retirement, perhaps by working part-time or taking on mentorship roles while still accruing meaningful benefits.

Other states, such as Washington, have reformed their pension systems to better retain educators. Missouri should do the same. We cannot afford to keep losing our best teachers and leaders simply because our pension system makes it financially advantageous for them to retire and work elsewhere.

It’s time to change the incentives. Let’s keep our educators in Missouri, where they belong.

The post Missouri Pension System Pushes Out Another Great Educator appeared first on Show-Me Institute.

In December 2024, in Springfield, Missouri, the Show-Me Institute and Show-Me Opportunity hosted an event featuring Dr. Aaron Hedlund, Chief Economist at the Show-Me Institute, and Elijah Haahr, former Missouri Speaker of the House and host of The Elijah Haahr Show on KWTO.

The discussion focused on the 2025 economic outlook for Missouri and the U.S., exploring issues such as unsustainable government spending, the growing national debt, and the Federal Reserve’s role in shaping inflation, housing, and labor markets.

This episode is a recording of that event.

Listen on Spotify

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Produced by Show-Me Opportunity

The post 2025 Economic Trends for the U.S. and Missouri with Aaron Hedlund and Elijah Haahr appeared first on Show-Me Institute.

Click here to download this publication.

The post Missouri’s Free-Market Policy Guide appeared first on Show-Me Institute.

Download the full 2025 Blueprint here

In this episode, Susan Pendergrass, James Shuls, Elias Tsapelas, Aaron Hedlund, David Stokes, Patrick Tuohey, and Avery Frank join Zach Lawhorn to discuss The 2025 Blueprint: Moving Missouri Forward. They discuss topics like statewide school choice, income tax reform, local government transparency, Missouri’s Taxpayer Bill of Rights, nuclear energy policy, and more.

Listen on Spotify

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About The 2025 Blueprint:

The Show-Me Institute’s mission is to advance liberty with individual responsibility by promoting market solutions for Missouri public policy. Our vision is for Missouri to be a place where entrepreneurs can pursue their dreams, parents are free to direct the education and upbringing of their children, and a growing economy provides opportunities for all. Critical to achieving this vision is a state government that understands the value of freedom in the lives and future of our people.

The 2025 Blueprint: Moving Missouri Forward explores 17 policy areas in which common-sense reform could immediately and positively impact everyday life for Missourians. Issues covered range from education and healthcare to unemployment insurance and budget reform. Each article identifies a problem that affects the citizens of our state, provides background information and analysis, proposes one or more solutions, and then boils the solutions down into actionable recommendations. We believe that the proposals our policy team has assembled can put Missouri on the path to a healthier economy, a better public education system, and a more vibrant and flourishing civil society.

Produced by Show-Me Opportunity

The post A Blueprint for Missouri in 2025 appeared first on Show-Me Institute.

The post Missouri Ballot Issues and the Return of Three Mile Island appeared first on Show-Me Institute.

If only someone had warned them about this years ago. Oh, that’s right . . . we did.

The topic of public-employee pension reform has long been important to Show-Me Institute writers. Back in 2013, for example, Andrew Biggs wrote Public Employee Pensions in Missouri: A Looming Crisis. The report did not specifically analyze St. Louis’s teacher pension fund, but the point about the pending crisis applied nonetheless.

When we call attention to impending problems, we are often called alarmists. I have twice had teacher groups circulate action alerts warning members not to respond to my requests for information regarding pensions. It was so bad we actually recorded a podcast telling people we were not trying to take away their pensions. The pushback we received led me to ask, “can we have meaningful dialogue on pension reform?”

So—what changed?

Now, it is the educators themselves raising the alarm. In the KSDK report, Byron Clemens, with the American Federation of Teachers in St. Louis, and his brother, state representative Doug Clemens (D-72nd District), are both quoted on the matter. They highlight how the underfunding of pension systems is harming retirees.

Unfortunately, the Clemens brothers do not call for significant pension reform. They see the symptoms of the problem, but rather than address the structural issues that got us to this point they seem to argue for policies that would only treat the symptoms.

St. Louis’s pension system is underfunded because of the program’s design. Missouri needs to explore new options, such as defined-contribution and hybrid plans, to provide retirees a safe and secure retirement.

The post Rising Concerns about St. Louis’s Teacher Pension Fund appeared first on Show-Me Institute.

Download a copy of the report here.

The post 2024 End of the Legislative Session Report appeared first on Show-Me Institute.

In this episode, Susan Pendergrass speaks with Ryan Bourne, the R. Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute and editor of the book The War on Prices: How Popular Misconceptions about Inflation, Prices, and Value Create Bad Policy. They discuss the effects of price controls, recent interventions in the economy, how to remind people about free market principals, and more.

Ryan Bourne occupies the R. Evan Scharf Chair for the Public Understanding of Economics at Cato and is the author of the recent books Economics In One Virus, and The War on Prices. He has written on numerous economic issues, including fiscal policy, inequality, minimum wages, infrastructure spending, the cost of living and rent control.

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Produced by Show-Me Opportunity

The post The War on Prices with Ryan Bourne appeared first on Show-Me Institute.

Get the scoop from the experts at the Show-Me Institute at our Insider’s Hour!

Join us at one of two open discussions with Brenda Talent, James Shuls, and Elias Tsapelas from the Show-Me Institute.

Two chances to get the scoop: 

Both Wednesday, May 22

Lunch Event

MAC West

1777 Des Peres Road

St. Louis, MO 63131

Doors open: 11:30 a.m.

Discussion and Q&A: 12-1:00 p.m.

Ticket Price: $15.00 (includes lunch and beverages)

Lunch Event Tickets Here

Evening Event

Cafe Napoli

7754 Forsyth Boulevard

St. Louis, MO 63105

Doors open: 4:30 p.m.

Discussion and Q&A: 5-5:45 p.m.

Ticket Price: $15.00 (includes a beverage and light snacks)

Evening Event Tickets Here

The post Live Events May 22: The Insider’s Hour with Show-Me Institute appeared first on Show-Me Institute.

On March 27, Sports Radio 810 WHB in Kansas City hosted a roundtable with Senior Fellow at the Show-Me Institute Patrick Tuohey, former KC Mayor Sly James, and Executive Director of the Jackson County Jim Rowland to discuss the upcoming vote on a new 3/8 percent sales tax to support “funding for park improvements consisting of Arrowhead Stadium and its surrounds, and a new Major League Baseball stadium in Jackson County.”

The post KC Stadium Tax Debate with Patrick Tuohey, Sly James and Jim Rowland appeared first on Show-Me Institute.

What’s happening in Jefferson City?

Get the scoop on the expanding Missouri budget, transparency in healthcare pricing, and free-market policies at our Insider’s Hour!

Join us at one of two open discussions with Brenda Talent, David Stokes, and Elias Tsapelas from the Show-Me Institute.

Thursday, March 21

MAC West

1777 Des Peres Road

St. Louis, MO 63131

Doors open: 11:30 a.m.

Discussion and Q&A: 12-1:00 p.m.

Ticket Price: Sold out

The lunch event is at capacity. Tickets still remain for the evening event below. 

Thursday, March 21

Cafe Napoli

7754 Forsyth Boulevard

St. Louis, MO 63105

Doors open: 4:30 p.m.

Discussion and Q&A: 5-5:45 p.m.

Ticket Price: $15.00 (includes a beverage and light snacks)

Purchase Tickets Here

Speakers:

Brenda Talent CEO

David Stokes Director of Municipal Policy

Elias Tsapelas Director of State Budget and Fiscal Policy

The post March 21 in St. Louis: The Insider’s Hour with Show-Me Institute appeared first on Show-Me Institute.

– Key takeaways from Governor Parson’s State of the State address
– Does Missouri have a budget surplus?
– A “source of income” ordinance passes in KC
– What’s moving in Jefferson City, and more

Listen on Apple Podcasts 

Listen on SoundCloud

LINKS:
Patrick Tuohey’s blog: showmeinstitute.org/blog/budget-and…budget-surplus/

David Stokes Testimony on Source of Income Rules: showmeinstitute.org/publication/mun…es-for-rentals/

Produced by Show-Me Opportunity

The post State of the State, Source of Income, and Triumphant Returns appeared first on Show-Me Institute.

On December 7, 2023, Brenda Talent joined Mike Ferguson in the Morning on NewsTalkSTL to discuss the 2024 Blueprint: Moving Missouri Forward.

Download the 2024 Blueprint here.

The 2024 Blueprint: Moving Missouri Forward explores 16 policy areas in which common-sense reform could immediately and positively impact everyday life for Missourians. Issues covered range from education and health care to unemployment insurance and budget reform. Each article identifies a problem that affects the citizens of our state, provides background information and analysis, proposes one or more solutions, and then boils the solutions down into actionable recommendations. We believe that the proposals our policy team has assembled can put Missouri on the path to a healthier economy, a better public education system, and a more vibrant and flourishing civil society.

The post Brenda Talent: How to Move Missouri Forward in 2024 appeared first on Show-Me Institute.

Download the 2024 Blueprint for Missouri here

On Wednesday, December 6, 2023, the Show-Me Institute hosted a Virtual Town Hall outlining the 2024 Blueprint for Missouri. Watch a recording of the event here.

Listen to the event as a podcast:

Listen on Apple Podcasts 

Listen on SoundCloud

The 2024 Blueprint: Moving Missouri Forward explores 16 policy areas in which common-sense reform could immediately and positively impact everyday life for Missourians. Issues covered range from education and health care to unemployment insurance and budget reform. Each article identifies a problem that affects the citizens of our state, provides background information and analysis, proposes one or more solutions, and then boils the solutions down into actionable recommendations. We believe that the proposals our policy team has assembled can put Missouri on the path to a healthier economy, a better public education system, and a more vibrant and flourishing civil society.

Produced by Show-Me Opportunity

The post Watch: A Blueprint for Missouri in 2024 appeared first on Show-Me Institute.

• Nuclear War
• Total Surrender
• Recommended State Department policy

The understanding of the joke is that whatever policy or ideas elected officials want to enact, it is the government employees—the bureaucrats—who have to carry it out. Too often, the bureaucrats carry it out in a manner that benefits them, not the elected officials or the public. (I care more about the latter.)

The City of St. Louis is experiencing a problem like that right now, with its efforts to combine its three 911 systems into one. Consolidating 911 centers should be one of the low-hanging fruits for service sharing among local governments. There are numerous examples of it benefitting communities in Missouri. Unfortunately, while many efforts have succeeded, a few have been stalled due to resistance from local bureaucrats.

The problems in St. Louis are all the more confusing because this effort is entirely within the same city government. In theory, it should be easier to implement service sharing in one government rather than sharing 911 services across different governments (which isn’t really that hard, either.) But, shockingly, the various city employee unions have thus far been able to stall the reform efforts. The mayor’s plans to consolidate and improve the 911 system have been blocked, thus far, by the unions representing the dispatchers who are currently within different departments. From the article:

One union represents police dispatchers, and another represents EMS and fire dispatchers. The unions have demanded bargaining over any dispatcher cross-training. Uncertainty about which union would represent a combined dispatcher position slowed attempts by Mayor Tishaura Jones and her former public safety director, Dan Isom, to allow dispatchers to handle all types of emergency calls.

The unions complained Jones and Isom’s plans for consolidation were made without consulting them and that the changes in job duties were clearly something that should be covered in contract negotiations. [emphasis mine]

Missouri attempted major public-sector union reforms a few years ago. While some reforms were passed into law, a lawsuit unfortunately led to the reforms being overturned by the Missouri Supreme Court.

St. Louis has public sector unions delaying improvements to a system that would improve the city’s currently terrible 911 system and spend tax dollars more efficiently. But hey, fiefdoms have to be protected, right?

FDR was right about public sector unions. They shouldn’t exist.

The post Looking For Bureaucratic Efficiencies in All the Wrong Places appeared first on Show-Me Institute.

The problem is that allowing retired teachers to come back to the classroom does nothing to address the problem. Let me be clear on what I mean by “the problem.” I am not talking about the problem of teacher recruitment and the number of people entering the profession. I’m talking about the teacher pipeline problem caused by the retirement system itself. It is a system that pushes people out. It incentivizes teachers, principals, and superintendents to retire in their mid-50s. This new provision does not address that issue; instead, it makes it worse.

Researchers have long known that defined-benefit pensions, such as those used in the Missouri teaching profession, have two key effects on the labor market. They provide a pull for workers to stay until the peak benefit period, then they push workers out. If a teacher begins working in Missouri right out of college around the age of 22, they will likely hit their peak benefit period around the age of 53.

If lawmakers truly want to keep great late-career teachers in the profession, they should revise the system that pushes them out in the first place. The best way to do this would be to move to a new type of pension system where teachers’ retirement plans would continue to accrue wealth as they continue to work through their 50s.

If we view Senate Bill 75 as a temporary fix (it does have a sunset built in) to address an immediate issue of teacher shortages, then the bill is fine. It is not, however, a fix to a teacher pension system that pushes out individuals who have so much more to give.

The post A Bandage Approach: Teaching after Retirement appeared first on Show-Me Institute.

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Produced by Show-Me Opportunity

The post Government Surveillance, Vetoes, and Missouri Vs. Florida appeared first on Show-Me Institute.