The latest stories and commentary in the battle to save America’s most successful government program.
I’m writing a series of posts as a blogging fellow for the Strengthen Social Security Campaign, a coalition of more than 270 national and state organizations.
(Still getting caught up on important back stories that are still valuable to read…)
According to a new analysis by the Chief Actuary of the Social Security Administration, the Bowles-Simpson proposal would reduce benefits by as much as $1,107 (16%) for 60% of “Very Low” earners, those workers with average annual earnings of around $10,800.
The Wall Street Journal is reporting good news on the Social Security front: the White House has decided to leave changes to Social Security out of their proposed budget, hopefully bringing an end their outreach to Republicans on negotiating changes to the system.
But while there’s some money to be gotten by taxing the top 2 percent — they have more than 20 percent of the income — they account for roughly their pro-rata share of benefit costs — that is, the richest 2 percent account for around 2 percent of Medicare expenses. (Maybe a bit less because they’re healthier than the average American, maybe a bit more because they live longer.) Social Security is more complicated, but bear in mind that high earners get bigger benefits, but also get taxed on those benefits; so again, we’re talking about savings not very different from their share of the population.
So we’re talking very small savings here. This is more anti-Wille Suttonism, going where the money isn’t.
I just don’t get it. Why do smart people keep saying stuff like this? Medicare is a problem. But unless you believe that the United States is literally going to collapse in the near future, Social Security isn’t. Period.
The weird thing about this is that Social Security isn’t even hard to understand. Taxes go in, benefits go out. Unlike healthcare, which involves extremely difficult questions of technological advancement and the specter of rationing, Social Security is just arithmetic. The chart on the right tells you everything you need to know: Right now, Social Security costs about 4.5% of GDP. That’s going to increase as the baby boomer generation retires, and then in 2030 it steadies out forever at around 6% of GDP.
That’s it. That’s the story. Our choices are equally simple. If, about ten years from now, we slowly increase payroll taxes by 1.5% of GDP, Social Security will be able to pay out its current promised benefits for the rest of the century. Conversely, if we keep payroll taxes where they are today, benefits will have to be cut to 75% of their promised level by around 2040 or so.
At first glance, this seemed encouraging. After all, Obama seemed to be saying that Social Security, unlike medical costs, isn’t the problem, because it isn’t contributing to the deficit the way Medicare and Medicare are. That’s a case progressives have been itching to hear Obama make.
But Adam Green of the Progressive Change Campaign Committee emails a far more pessimistic interpretation:
“President Obama said Social Security is not a “huge contributor” to the deficit. In fact, Social Security has a $2.5 trillion surplus, is not even part of the general budget, and therefore does not contribute one penny to the deficit…
“Cuts, tweaks, or slashes to Social Security are the exact same thing — a broken promise to American workers who paid for and earned Social Security benefits.”
So does that mean that Social Security is only adding $41 billion to the deficit this year, instead of the $695 billion I saw in the papers? No. It’s adding zero to the deficit. This self-funded program is forbidden by law from ever adding to the deficit. It has a $2.6 trillion (that’s “trillion” with a “t”) surplus and will return to profitability in a couple of years, before finally using up its surplus so that it can pay “only” 75% of benefits — nearly three decades from now. There are easy fixes for that, especially lifting the cap on the payroll tax. But apparently anything that discommodes the glitterati doesn’t fit the prevailing narrative. Whatever the reason, everybody’s pretending that option doesn’t exist.
Why do reporters parrot misinformation about Social Security? It’s probably done in the name of balance and a centrist approach. Trouble is, the center on this issue has been pulled so far right that the Beltway consensus portrays Social Security as a program in crisis and a main driver of the federal budget deficit.
But the consensus is wrong, and so is much of the reporting.
House Republicans will wait until the budget fight this spring to attack Social Security head-on. But in the meantime, they’re coming after America’s favorite entitlement at an angle. In the current spending bill, they’re proposing to slash the administrative funds that federal employees use to run the program. Democrats warn this will lead to furloughs and other service interruptions that could delay checks and prevent new retirees from enrolling.
First, let’s remember that Social Security actually provides support at a very modest level. Last year, the average retirement benefit was $1,170 a month, or about $14,000 a year, with the average disabled worker or widow receiving slightly less.
More important than those comparative statistics is the fact that the great majority of Social Security beneficiaries have no other cushion for their retirement—not because they were lazy or improvident, but because their wages were simply too low to permit much savings, let alone investment.
By contrast, if you want to impose the burden for bringing Social Security into long-term balance on those who can afford it, you can simply eliminate the payroll tax cap and solve the entire problem, keeping Social Security solvent for at least the next 75 years, according to the Congressional Research Service.
It’s just not that hard a problem, and certainly not something that needs to be thrown into a grand bargain in order to bully Democrats into supporting it.
Let’s begin by assessing the claim implicit in the first part of the President’s message: That the imperatives and conditions for reforming Social Security are as strong now as they were in 1983.
An honest interpretation of the facts shows this to be a false analogy. Neither the imperatives, nor the conditions for Social Security reform in 2011 are what they were in 1983.
Here’s what I mean:
•Saving Social Security may have required compromise in 1983, but that is no longer true. Back in 1983, Social Security was facing an immediate financial shortfall in which it would be unable to pay full benefits in a matter of months. Democrats had no choice but to deal with the problem right away, so the impetus to compromise was much greater. In fact, the cuts and revenue increases implemented then—including a delayed COLA, retirement age increase, and taxation of benefits—are responsible for Social Security’s current surplus of $2.6 trillion.
Back in 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of all wages covered by Social Security. That 90 percent figure was built into the Greenspan Commission’s fixes. The Commission assumed that, as the ceiling rose with inflation, the Social Security payroll tax would continue to hit 90 percent of total income.
Today, though, the Social Security payroll tax hits only about 84 percent of total income.
It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today the top 1 percent takes in more than 20 percent.
If we want to go back to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000.
Presto. Social Security’s long-term (beyond 26 years from now) problem would be solved.
So there’s no reason even to consider reducing Social Security benefits or raising the age of eligibility. The logical response to the increasing concentration of income at the top is simply to raise the ceiling.
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