Social Security: It’s Not a Problem Now?
The President’s Budget Director, Jacob Lew, curiously declared on Monday that “Social Security isn’t the problem…” It was strange because just last week the President was chiding the Republicans for not want to work together to “fix” Social Security. Social Security one of the nation’s most effective anti-poverty programs, but it’s facing a serious problem. 2010 was the first year that the program paid more in benefits than it received in payroll taxes. This deficit will continue to grow, especially with the impending retirement of the Baby Boomers. It is true that Social Security does not directly impact the budget as long you ignore the fact that the Social Security Trust Fund is full of IOUs from Congress. We shouldn’t.
Though the Trust Fund is technically solvent and can pay full benefits for the next 26 years, Congress has consistently raided it to avoid raising taxes or cutting other programs. This means that we must add to the deficit in order to pay benefits every year that Social Security takes in less than it pays out. It was $56 billion last year and will grow higher every year. The Fund will be able to pay full benefits until 2037. If nothing is done benefits drop to three-quarters after that.
Even if we ignore the imbalance, as Mr. Lew does, why wait to “fix” the program? The longer we wait, the more dramatic and immediate the changes that will need to become. Social Security already pays a very modest benefit. Most retirees receive less than 2,000 per month. Any cuts will devastate our seniors and increase our poverty level. If we allow the Social Security to go unfixed for too long, the likelihood of cuts becomes greater. If we kick the can too far, we may be faced with a Republican President or a that GOP controls both Chambers. Republicans want to end this program – President Bush tried to when he proposed privatizing the accounts. Why wouldn’t they try when they have the power? There is no reason not to do something now, when we have a President who is not going to creatively de-fund the program or attempt to fundamentally change Social Security.
There are responsible ways to fix the program, but whatever reform we choose or are forced to implement will not be entirely pleasant. Reform will most likely require a combination of specific cuts and tax increases. It’s a reality that we have to face. We can have a rational conversation and debate or we can demonize the people we don’t agree with. Thus far, we chosen the latter. If we do it right we can ensure that Social Security’s legacy as a program that keeps seniors off of the bread line remains intact.
Though not likely, we could glean from some of the models that countries across the world use. As opposed to our pay-as-you go system, workers in Italy and Sweden pay taxes into an account with a rate of return set by the government. At retirement, a worker’s account is invested into an annuity and given to them. Countries like Thailand and India send payroll taxes into an account with a government institution that has a guaranteed rate of return. The returns are tied to Government bonds. This is not privatization, but it still might not be right for the nation. That doesn’t mean we shouldn’t we at least entertain something like a “notional” account instead of some of the more draconian reforms we might be forced into.
If we stick with our current system, one fix is increasing the social security payroll tax. Unfortunately the tax is regressive and would require an offset for low-income workers, which would be difficult to pass. We could also increase the cap on income that is subject to the Social Security Tax, which is currently just over $106,800. Right now not all Social Security benefits are taxable, unlike other retirement accounts. Taxing all benefits will help to close the gap.
Raising the retirement age for workers under 50 or even 40 is another idea. This would exempt people who are close to retirement anytime in the next decade and a half and only affect those with time to plan. Raising the age for younger workers to 69 shouldn’t be that controversial. We live longer and we’re working longer.
This would also have added bonus of starting a conversation about retirement in this country. For too long we’ve lived with the American myth that retirement is all butterflies and strawberries and Mai-Tais and beach sand. It’s not, but that doesn’t mean retired life can’t be good or needs to be difficult. We just can’t all expect to move to sunnier climes when we retire.
Retirement will get a whole lot harder if we don’t do anything about Social Security. Social Security is supposed to be an insurance program. Unfortunately, it has become a retirement fund. The decline of private sector pensions, the rise of 401Ks, and the ease with which one can tap into a 401K mean that a lot of Americans don’t have a “nest egg”. People rely on Social Security and will, more and more. A third of recipients count on Social Security for 90% of their retirement income. Not fixing Social Security when we have a reasonable President to do so is a gigantic missed opportunity to “win the future” and mend an important safety net.
There is a simple reason that we will continue to talk, but do nothing to reform the system until we are forced to. Social Security is one of the cliché “third-rails” of American politics. The public loves this life saving program. So much that they ignore it’s quasi-socialist nature. It’s easy to rile an electorate up about Social Security. It costs some politicians their elections. We think our elected officials don’t want to touch Social Security because they understand that difficult choices must be made to save the program and they won’t be popular. It’s not that, it’s far more cynical.
Social Security reform is often brought up, but truly acted on because it’s a weapon. Social Security is the biggest arrow in the rhetorical quiver. President Obama invoked the spectre of privatization during the mid-terms and just this week Mike Huckabee said it was time to cut benefits. Fixing Social Security – making it solvent and ensuring that it will pay full benefits beyond 2037 takes it out of play. Politicians can’t use a stable Social Security to demagogue the “other side of the aisle”. It’s a weapon and that’s why Mr. Lew is attempting to take Social Security reform off of the table – at least until 2012.
Our seniors deserve better.
Pic Via | Richard B. Levine/Newscom/File
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