We just got back from the Women’s March in Washington. The outpouring of people throughout the world
was awesome, but it will not mean much unless we take our newfound energy and
find a way to channel our hope and fear into actions that will contain the
damage that President Trump and the Republican Congress could do. All of us need to do something—whether it is calling
our Representatives and Senators on a regular basis, joining local activist
groups or anything else.
Looking for something you can do? One critical place to put your energy is
joining efforts to save Social Security.
Social Security has not been on the radar, and Candidate Trump promised
not to touch it or Medicare. Yet
consider that Mr. Trump often does not remember the promises he made when it is
convenient to him, and the Speaker of the House, Paul Ryan, is an implacable
foe of Social Security and Medicare and has been waiting for years for the
opportunity to take them down.
Consider this scenario.
Congress passes tax reform bills that substantially lower the top rates
on individuals and the rates on businesses.
The tax cuts lead directly and inevitably to a ballooning federal
deficit, which Congress and President Trump blame on Social Security and
Medicare among the primary causes.
Dismantling the Social Security Trust Fund will put billions of dollars
back into the treasury, which could go to cover the budget gap produced by tax
cuts.
We have been hearing for years that Social Security and
Medicare are going to drain the federal budget or go bust, and so the
people currently paying payroll taxes will got nothing back in the future. Many
people believe it is true and that has eroded support for Social Security.
But it is a lie that
opponents of Social Security have been repeating for years. Social Security is not about to go bust. I’ll talk about
Medicare at a later date, but here are the facts about Social Security.
The Facts About
Social Security
Social Security, as you all know, is funded by payroll
taxes. Workers currently pay 6.2% of
their salary into Social Security and their employers pay another 6.2%. And as Judy did for many years, people who
are self-employed pay 12.4% of income.
People pay the Social Security tax on income up to $118,000/year. Everything above $118,000 is not taxed for
Social Security.
Social Security was established in 1935 as a pay as you go
system. That is, current workers in 1935
paid the tax and retired persons began receiving payments. So unlike a pension or IRA where you pay into
a fund and that money belongs to you, Social Security has never worked that
way. It is, instead, a compact between
generations that today’s workers will support today’s elders.
That system worked well for a long time because there were
lots of working age people paying into Social Security and relatively few
retired people receiving benefits. That population
balance is changing and that’s why economists and everyone else has gotten
worried. As recently as 1970, there were
approximately 4 workers for every retiree.
As the birthrate has decreased and people are also living longer, there
are fewer workers for every retiree. The
current ratio is approximately 3 workers for every retiree. The ratio is expected to drop to 2.2 workers
to each retiree in 2030 and 2 per retiree in 2050.
What does that mean for Social Security? Remember Al Gore’s lock box? That’s the Social Security Trust Fund, which
has a surplus. That is, more money has
been collected over the years than Social Security has paid out and the fund
currently still runs a surplus. As the number of retirees increases in future
years, Social Security will be able to use its surplus to pay them. If we do nothing now, Social Security will
begin running a deficit somewhere around 2023, and the surplus in the Trust Fund
will run out in 2034 (although some estimates place the date a decade later).
But that does not mean that retirees in 2034 will get
nothing. If we do nothing to re-adjust
Social Security now, payments by workers to Social Security in 2034 will still
be able to cover 75% of retirees’ Social Security income. In other words, Social Security will not go
broke. It will just pay out smaller
amounts.
Furthermore, it could be fixed so that retirees continue to
receive most or all of the money due
them. Here are some options. Each has its advantages and disadvantage but
a compromise that spreads the cost across some or all of these options would assure a better retirement for
everyone without overburdening today’s workers.
1.
Increase
the Social Security Tax: A small
increase in the payroll tax would assure higher payments to recipients in the future. There has been support among the public in the past for a
small increase, but this is a regressive tax that falls hardest on poor and
middle-income people.
2.
Increase
the Ceiling on the Amount of Income Taxed:
This has been discussed for years, but there has been no action on
it. Given the increased wealth held by
the wealthiest people in our country, increasing the ceiling of income that
is taxed for Social Security from the current $118,000 to a higher amount could cover the shortfall. Some advocates argue increasing the cap to
around $215,000, which means about 90% of the population will be taxed on all
their income. The last Social Security reform in 1983
actually intended to extend the tax to the 90% level, but that has not happened
due to technical reasons for how the cap on the tax is computed. Maybe the cap could even go a bit higher.
3.
Invest a
Portion of Social Security Funds in Stock Funds or Other Income Funds. This has been a popular option on the
political right. It was also the choice
of the students Steve taught in recent years.
The experience of other countries that have adopted this option is that
it works great when the market goes up and poorly when the market goes
down. Retirees in the US with the lowest income
(the bottom 20%) depend almost entirely on Social Security for income. For them, this would be a
precarious option.
4.
Decrease
in Benefits. A small decrease in
benefits today will extend the life of the Trust Fund.
5.
Increase
the Age for Full Social Security Benefits to 70. Many people currently work to 70 and
beyond. People who work in physically
strenuous jobs, however, would be disadvantaged by this option.
6.
Reduce
the Annual Cost of Living Increase.
This annual increase is set based on inflation.
In recent years, increases have been small or non-existent.
There are other fixes as well. The point is that Social Security is not a
cause of budget deficits, and that it could be fixed in ways that future
retirees get most or all of benefits that would be due them.
There is one other fix that is not talked about much. We currently have 11 million illegal aliens
in our country. Some are probably paying
Social Security taxes already, but if we legalize their work status, we bring
many young people with many working years ahead of them into the system. This
will offset the bulge of Baby Boomers collecting benefits over the next 20-30
years. Instead of building a wall, we
would be better off with a planful workers program for immigrants.
So get involved! Here are a couple of organizations devoted
to saving Social Security and Medicare.
I don’t know these groups, but it is a place to start. Or start a local group that bombards your
local representatives and senators on the issue.
National Committee to Preserve Social Security and Medicare
Americans United for Change
Resources:
A discussion of options for Social Security from the American Association for
Retired Persons
Put together a proposal yourself by using the tool created
by the Committee for a Responsible Federal Budget
http://crfb.org/socialsecurityreformer/
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