It’s disturbing to hear young people say that Social Security won’t be around when they retire. But it’s not just young people. I’ve heard older Americans–some of them receiving SS benefits–claim that SS is dying. I think that if young and old knew the facts, they would be armed to support SS against the Party of Bads and Stupids that wants to tear it down. Here are common views and my responses.
My nephew Bob, a college senior, informs me: “Social Security is bankrupt. Everyone knows that.”
Not so fast. Right now there’s a $2.8 trillion surplus in the SS fund. But it’s true: by 2030, SS may be able to pay only 79% of expected benefits. Why? The worker/retiree ratio is getting worse. Also, wages have not grown much and that limits contributions. Higher unemployment during the Great Recession didn’t help either. Finally, as more income shifts to the rich, less is taxed. In other words, more inequality causes financial shortfalls for Social Security. Currently only the first $118,500 of wages are taxed. If you earned that much last year, you paid $7,347. So did Kobe Bryant and Donald Trump.
So SS financing uses regressive taxation. It is important to add that monthly SS benefits are mildly progressive. However, total lifetime benefits are regressive because the rich live eight years longer than low-income recipients. So there are things to do to make SS stronger and more progressive.
Sarah, my Wall Street banker cousin, says people need tax shelters. SS is so yesterday.
You should have something besides SS for your retirement. The average monthly benefit is only $1341. But when capitalists say we should save more, they don’t seem to care that many people have nothing left after paying the bills. And many businesses don’t contribute as much to employee tax shelters as they once put into old-style pension plans.
So SS is more essential than ever. It’s more secure than private savings. Participation and taxation are compulsory for most people; you don’t have to think about adding to SS. And you can’t raid your benefits as you can with tax shelters. Your freedom is limited; but it’s for a good cause.
But Bob is still skeptical. If SS benefits are low and if SS financing is shaky, is SS really worth saving?
SS plusses far outweigh the minuses. SS is a stable and rather conservative program. And it’s efficient. Administrative costs are less than 1% of revenues. That’s less than private plans. And SS has not missed a payout in eighty years. The program pays 60 million people every month. After 9/11, checks were mailed to survivors three weeks after the attack on the World Trade Center.
Finally, while benefits can be quite low, many Americans are quite poor [and increasingly without guaranteed pensions], so SS lifts many people out of poverty. Benefits are 83% of the total income of the poorest two-fifths of all households. Benefits are the total income of 42% of African-Americans 65 and over, 45% of Hispanics, and 33% of Asian-Americans. SS makes older people less poor and a little more independent. Their children can worry less too. We forget how grim old-age used to be. To get a feel for that, watch Make Way for Tomorrow (1937).
Bob’s mother, my sister Isobel, agrees that we should fix SS rather than scrap it. She’s a good citizen and has studied reform proposals. Here’s my take.
Scam chains. Some purported experts, often conservatives, want to cut the SS Cost-of-Living Allowance. They claim that seniors spend less than others and they have formulas to prove it. The formulas often have the word chain attached to them and look ever so scientific, but they are really a sneak attack on the elderly.
Privatize parts of SS. If financing is a problem, and if the current surplus doesn’t earn much interest (funds must be invested in special treasury bills), wouldn’t it be smart to let Wall Street wizards invest the surplus? On average stocks and bonds grow by 7% a year, and the wizards would surely get more.
Response: That’s what they say. But values often fall. And really, should we trust Wall Street after the catastrophe they caused a few years ago. People who were ready to retire during the Great Recession found that their retirement funds had shrunk by as much 40%.
Raise the age of full-benefit retirement. Everyone’s living longer.
Response: Yes, people are living longer, but the poor die earlier and get fewer years of benefits. And working longer is easier for the people with desk jobs like Republican leaders Paul Ryan and Kevin Brady who support this change. Raising the age is especially unfair to people with physically demanding, low-wage jobs.
Cut benefits to the affluent.
Response: Sounds good, but I worry about losing the idea that SS is a system into which everyone contributes and from which everyone gets a benefit. If the affluent got less or nothing, they’d agitate to limit their contributions and more of them would attack SS as a welfare program. That would make it easier for the Party of Bads and Stupids to undermine the whole program.
People who want to keep SS strong should encourage Americans to be proud of it. It is good that we take care of one another through our government. Computer guy John Doe in Oregon and his employer contribute 12.4% of wages every month so that Georgia retiree Alice Jefferson, who used to work at Wal-Mart, gets her monthly check. That’s good.
Two Reforms to Start With. We should raise minimum benefits so that fewer recipients are poor or nearly poor; and we should eliminate the ceiling on taxable income. The latter offers a simple solution to SS’s fiscal shortage, but also, along with higher minimum payments, it would make America a little less unequal. Reforming SS, then, is part of the broad campaign against inequality–a campaign that has made a remarkable start in minimum-wage movements around the country.
Learn More. I encourage Bob and Sarah to learn more about SS, to engage family and friends on the topic, and to weigh in with their political representatives. There are hundreds of useful sources including good newspapers, the official site at ssa.gov, the Alliance for Retired Americans, socialsecurityworks.org, Economic Policy Institute at epi.org, and strengthensocialsecurity.org. You may even learn something from the extremely conservative stuff at www.heritage.org.