A Social Security Severance for Workers in the age of an AI- Bolstered Workforce

A submission to the Boyd Institute’s Essay contest

Like with anything, there is a doomer viewpoint on the future of social security and its contribution to our fiscal debt trap. But there is also an optimistic way to see the opportunities of the current moment as a way to bring radical reform.

The doomer view is easy to see. AI replaces some human workers and this, paired with already declining labor participation rates and a declining birth rate mean less people paying in. This happens just as more people are expecting benefits with an aging population. All of this adds to our already unsustainable debt.

The alternative? We allocate some of the gains in productivity from AI and technology as an additional funding source for social security, thereby addressing at least one way that the tax code incentivizes technology investment over people investment. This prevents further degradation of the social security contributor pool if companies do replace workers with AI and technology. We then explore new twists on the social security privatization proposals of old, updating them for the current moment. This allocates capital to the private sector and innovation rather than the government who prints IOUs like Jim Carey’s character in “Dumb and Dumber” - (“That’s as good as money sir. Those are IOUs”). We propose a way to balance one key dilemma: wealthy workers paid into social security and want benefits in return for the sake of fairness, but they probably don’t need them. Let’s explore.

Allocating some of the gains from AI and technology towards funding social security seems like a no-brainer. We may continue to have less and less human workers, but we may see the labor force grow in the coming years - just with bots. It is outside the scope of this proposal to flesh this out, but in a time where jobs being replaced by AI is a hot topic, I don’t as often hear about the fact that technology can be tax deductible as an investment, whereas investing in people is a cost with no such favorable tax treatment. Companies who replace workers with people shouldn’t skirt paying into an already unsustainable social security program.

Before I look at this from my own lens as a 38 year old dad of 2, I have to preface this: I am probably going to be misconstrued as pessimistic about the future. However, the truth is… I see the opportunity in this current moment to be vast in a way that we have never seen in human history. I am pessimistic that the means of long-term financial security of the past, namely social security and corporate jobs, will be effective for future generations.

I’m in a corporate restructuring situation. But whereas in the past, people likely hoped to be retained by the company, most people that I talk to now want to be severed. Granted, the package is generous. But do you know what I think the mindset shift is attributable to? No one I work with really thinks that even if they survive this round of layoffs, that any corporate job is a long-term plan now. Because what will the corporation do the next time they want to cut costs or the next time they have an excuse to? More layoffs. Will AI replace their job in the future? Who knows. Might as well take the cash now and use that cash to build something that will last.

But what would I do with a year’s salary being paid out now? I might spend more time on 2 side businesses. I might spend more dedicated time towards skill-building than I feasibly can with a demanding job. I might even get a PhD. I might invest in the market, in real estate, etc. All of this to say, it’s possible my longterm trajectory could be better with an injection of cash right now instead of a steady future check if that gives me the flexibility to build something more sustainable.

What does this have to do with debts and deficits? Social security for me as a 38 year old feels different to me than it did for my parents. In the same way, a corporate job feels different to me than it did for my parents. I don’t have the expectation that one company will keep me for 30 years. In fact, executives have told me that paradigm is over. And social security? I don’t view it as something that I am certain to get. Or if I do get it, will its purchasing power be inflated away?

So what would I like to see with regard to social security? My severance from the “books” of the United States government. What would that mean? Telling me point blank I won’t get social security income in its current form (which I don’t believe I will get anyway). Instead? An injection of cash now or money diverted to a Roth IRA now (instead of to the government) that can be invested and, unlike social security, benefit from compounding gains.

Similar proposals have come in the past, but this moment has some key differences. George W. Bush and Paul Ryan previously advocated for privatization. Chile had this type of policy reform in the 1980s. So why does now make sense to try something like this again? For one, if techno futurists are to be believed, we will have Universal High Income at some point in the future. If that is true, of what use will social security be to me? The world will be humming with AI productivity. And wouldn’t that capital be more efficiently deployed now in the private sector, just as this disruptive innovation is minting literal trillions of dollars?

What if it doesn’t work out? What if people take the money now, and they don’t build something meaningful with it, and UHI is a utopian fantasy? At least the outcome is on the individual and not on the ability of our politicians to balance the budget and make social security solvent. At this point, I’d trust meme stock traders’ choices over our government’s.

A few nuts and bolts: this would have to be a voluntary opt-in program. Not everyone would want to take the risk. We can’t break promises we made to current seniors. There would also have to be parameters on who qualifies. Perhaps a “re-org” to social security would be better off done first in a more gradual way starting with new entrants into the workforce. Consider a pilot where new entrants pay the same amount in social security they otherwise would, except they are entitled to no future social security benefits, but 1/2 of what they would pay is put in a Roth IRA that benefits from compounding over time. The compounding factor alone would likely make it so that they would be better off than the current social security payment schedule, even while 1/2 of the amount paid goes into the program while being entitled to 0 benefits. This would mean constricted solvency in the short term for social security, but greatly enhanced solvency in the longer term. Think about the growth that could happen and the amount of investment this would drive with the private sector having this capital rather than the government.

The math for the government is a bit harder for someone like me who is in between a recent graduate and a current senior. For me, and those in my demographic, to cash out now some of what we have paid in to-date would likely be a pill the government could not swallow. That is, unless you look at the cost of this in context to other government spending. Let’s look at some rough numbers.

Let’s say you allowed everyone under 40 to cash out half of what they paid in to-date while being entitled to 0 benefits in the future. Rough math would make a median worker in their 20s get $15k, in their 30s get $40k, and in their 40s get $90k. It would cost the government $500 billion to $1 trillion in the short term if every worker took the package, though that would be unlikely. This seems like an infeasible amount of money. However, $1 trillion is what we pay ANNUALLY in debt servicing. It is less than the CARES act during Covid. Don’t get me wrong, these were disastrous line items in the federal budget. But none of the others actually reduced the government’s liabilities in the future.

These amounts for median workers might not be enough to entice many to take the offer. However, selection bias could mean higher income (and potentially higher skilled) workers who would be entitled to cash out more now become more likely to opt in. Imagine the effect of incentivizing high skilled w-2 workers to have seed capital for whatever entrepreneurial or investment venture they judge to be best. I trust this cohort’s capital allocation decisions much more than those of the federal government. This group also likely already has decent retirement savings, and is thus an inefficient place to allocate future social security dollars to begin with. They want the money because they paid in, but if you solved this perceived injustice by giving them some of it, plus the compounding time value of money, maybe it addresses multiple issues of both fairness and allocation inefficiency (high earners / net worth individuals getting social security).

Or perhaps there is a way to make this concept even more focused: anyone who already has x amount of retirement savings is eligible to opt in. Make it an amount of saved retirement where they won’t need the money coming from social security. Again, they want to receive something because they paid in. But if you offer them some portion of what they paid in now while reducing their future entitlement, they can invest it now. The government reduces its future liabilities. The wealthier worker still gets something.

There is still a lot to hammer out with this type of proposal. Maybe some of this would not work. But do you know what else is not working? Our current plan with regard to social security.