Katie Couric, a veteran TV journalist and currently global anchor for Yahoo News, just trashed Social Security in a hit piece misleadingly called “Explaining Social Security” that purported to be explaining the system’s financial “crisis.” Far from explaining the system, she trundled out tired falsehoods and scare tactics long used by the system’s enemies — notably the Republican Party and including many Democrats in the pocket of Wall Street. (Significantly, the online video was sponsored by a Merrill Lynch/Bank of America, hardly a fan of Social Security.)
First, Couric’s long list of whoppers:
She claims the system works like a bank, collecting workers’ Social Security payroll taxes, and stashing them under a government mattress, and then paying out the money as retirement checks when they take their retirement. This is simply not true and was never meant to be true. What actually happens, and happened from the beginning of the program in1936, is that the payroll taxes collected from current workers and their employers go to pay for the benefits of current retirees.
Couric makes it appear that greedy baby boomers are going to be sucking money out of the pockets of younger active workers to fund their retirements as though this were something new and unseemly, when in fact, retirees since 1936 have been getting their benefits paid by younger people actively in the workforce. That is the actual way the system was designed to work, not, as she suggests, as a enforced retirement savings program.
Then she highlights what she wrongly claims is the problem: that the system has gone out of whack because of the unanticipated burden of some 74 million baby boomers now beginning to retire and collect Social Security benefits, and a relatively diminished number of current workers who have to pay for those benefits.
Couric warns ominously that the $2.8 trillion in the Social Security Trust Fund is being diminished to cover the annual shortfall in current payroll tax collections, and says this fund is going to eventually run out. Then she says that the program’s future is “well…not secure.”
This is about as disingenuous or ignorant as a journalist can be. Social Security is completely secure — unless crooked politicians kill it. Sure the trust fund would “run out” in about 2033 if nothing was changed by Congress between now and then But Couric conveniently fails to mention that even then, taxes from current workers would be sufficient to cover 77% of the retiring boomer benefits due indefinitely until the percentage of elderly begins to decline. And remember, by 2033 the youngest baby boomer would be 69, so the wave of retirees would actually already be shrinking in relation to the active workforce, meaning the alleged “crisis” would already be resolving itself.
Couric, like political critics of the program who have been seeking its demise ever since its creation as a signature New Deal program, offers only a hatchet in listing various “cures” for the problem: cutting Social Security Benefits, further raising the retirement age, instituting a “means test” for benefits), raising the payroll tax, or turning the program over to Wall Street, which she, rather incredibly, suggests “knows better than the government when it comes to making a return on your investments” (right!) . She completely ignores any of the much more progressive solutions to the pending shortfall in current employee payroll taxes such as, for example, simply lifting the cap on income subject to the Social Security payroll tax — a cap which is currently set at a relatively modest $118,500.
In other words, this year only the first $118,500 of a person’s earnings is subject to the payroll tax, which is paid at a rate of 6.2% each for both employers and employees. A person who earns $200,000 or $1 million, still only pays the tax on that first $118,500. The rest of her or his income is tax free as far as the payroll tax goes. As PBS reported in a 2012 program featuring economist Paul Solomon, eliminate that cap and subject all income to the combined 12.4% FICA payroll tax, and Social Security would be able to pay all benefits in full for the next 75 years — well beyond the death of the last baby boomer.
But that’s not all. There are other reforms that could be made that would not just fix the system’s temporary shortfall in income, but that would allow it to pay much higher and more realistic retirement benefits (badly needed because greedy employers have been eliminating the defined benefit pensions that used to be the norm for most workers, and even cutting back on their contributions to 401(k) retirement savings plans, leaving Social Security as the only retirement funding for most Americans). One such reform would be to start applying the payroll tax to capital gains — the favored income source of the wealthy. Capital gains are currently exempt from Social Security taxation entirely. According to the IRS, wealthy investors earned nearly half a trillion dollars in capital gains in 2012 (the wealthiest 1% of Americans — those who earned more than $250,000 a year, received 87% of that money). Not only is their so-called “unearned income” taxed at a lower rate than regular income already, but not a penny of Social Security tax is collected on it. It should be, and there is a precedent too: in 2012, Congress added a 3.8% tax surcharge to the then 20% income tax on capital gains, to help fund the Medicare program. They should do the same thing to help fund improved Social Security benefits, that alone would add. If the wealthy had to pay the Social Security payroll tax on their capital gains, it would provide an extra $1000 per year to every baby boomer retiree at the absolute height of the baby boom retirement.
The wealthy could also be required to pay a full income tax rate appropriate to their tax bracket on the full amount of Social Security benefits they receive in retirement, instead of only being taxed on 85% of those benefits — the current maximum for all beneficiaries.
Another idea not mentioned by Couric to further support future Social Security benefits, and even raise them, is one long used by many European countries for their much sounder and more generous retirement systems: make employers pay a higher payroll tax rate than employess. There is no magic reason why this tax should be split 50/50 as Social Security always has been. Why not 25/75, with employers paying three-quarters of the tax? Doing that, the system could lower taxes on employees, say to 4%, and raise them on employers, say to 12%. That would bring in huge new revenue that would allow the system to start paying a decent retirement benefit instead of just enough to keep the poor off of heating grates in the winter. (Mainstream economists always argue that all the tax, including the employer payments, actually come out of the workers’ salaries, but this is debatable to say the least. Most people negotiating for a job look at what their take-home pay is going to be, and look elsewhere if that amount is not enough to pay their bills, so the real economics of it is that the employer payroll tax will come of the employer’s bottom line, not the worker’s, just like health benefits do, or the cost of raw materials.)
Perhaps the biggest “failing” of Couric’s so-called “explanation” of the Social Security “crisis,” was her failure to note that the reason for the Trust Fund balance of $2.8 trillion is that back in 1983, President Ronald Reagan and the Democratic Congress agreed to a reform to slowly push back the retirement age, from a then 65 to 66 and later 67, and to raise the payroll tax from a then 10.16% to the current 12.4%. They put the money into a trust fund precisely in order to pre-fund the baby boomers in retirement, and that pre-funded reserve was supposed to decline back to zero as that post-war wave of population passed through retirement. (So much for the libel from people like NJ Gov. Chris Christie or Social Security arch-enemy Peter Peterson that Baby Boomers are trying to get a free ride on their kids’ incomes!) That it appears to be not quite sufficient to do the job isn’t a problem with the Social Security system — it’s a result of two things: improved medical care that has extended US citizens’ lifespans by an unanticipated amount (a good thing), and several unusually powerful economic downturns — most notably the Wall Street-caused Fiscal Crisis and subsequent Great Recession, which greatly reduced incomes (and thus payroll taxes) as well as the numbers of people with full-time, well-paying jobs.
One last problem with Couric’s hit job on Social Security posing as a neutral “explanation” of Social Security’s alleged “crisis,” is her ignoring of the most obscene problem: Congress’ continued refusal to address the issue. The reality is that every year Congress and the President fail to address the 2033 run-down of Trust Fund revenues means that any future fix will have to be more dramatic. Ten years ago, it wouldn’t have been necessary to lift the payroll tax on all income to eliminate the problem. It could have been accomplished by taxing just the the first several hundred thousand dollars of income, or with a surcharge on income of over $1 million. Now it has to be on all income, for example. Or the shortfall in revenues for boomer retirement could have been fixed by a small 1% increase in the payroll tax — an amount most people wouldn’t have even noticed in their paychecks.
That refusal to act on the part of Congress is the result of deliberate stonewalling by ideological opponents of Social Security and members of Congress in the pocket of Wall Street and the US Chamber of Commerce — people and corporate interests who are hoping to kill off the system before Americans wake up and demand a real fix.
And there is the real story. Maybe it’s true, as Couric claims, that only 20% of currently working Americans believe that Social Security will be able to pay them the benefits they have earned when it’s their turn to retire. But they are thinking that way for two reasons: one is people in the media like Couric, who are spreading lies and scare stories about the system, and the other is that Congress is deliberately trying to kill Social Security on behalf of the Wall Street financiers and all of corporate America which, in the first case, want to be able to get access to all that money so they can charge fees to invest it, and in the second, want to stop having to pay their share of the payroll tax. Their attitude: To hell with old people and the disabled!
What Wall Street and corporate America really fear is that as baby boomers start to become the majority of retirees, and as their children begin to enter middle age in large numbers, there will be the largest senior lobby in history, and we in that voting cohort will be able, politically, to demand that Social Security be better funded and more generous in supporting America’s retired and disabled. (And don’t forget, we’ll also have the support of our kids, who in reality want their elders to have decent retirement funding, if only so they won’t have to support them on their own!)
That too is a reality that Couric completely ignores.