Image by Markus Winkler.
Social Security, a jewel of the New Deal, has faced bi-partisan opposition since at least the Reagan Administration, when Democrats joined Republicans to raise the retirement age and increase payroll taxes enough to generate trillions in Trust Fund surpluses. Many Liberals have now joined conservatives again in pressing for Social Security “reform.” One example is a recent NY Times editorial: “Democrats must recognize that changes to Social Security and Medicare, the major drivers of expected federal spending growth, should be on the table. Anything less will prove fiscally unsustainable.” Social Security is completely funded by a dedicated tax, and Medicare partially so, unlike, say, the military.
Our chronic deficits and massive debt stem, not from Social Security, but primarily from two costly but damaging political choices: bloated spending to support a global military presence, and tax cuts for the privileged. The former is an attempt to maintain an obsolete, unipolar world, and the latter has generated a return of 1920’s inequality, giving a new set of billionaires power to shape domestic priorities through their funding for both political parties and through their private equity takeovers in education, healthcare, retail services and more.
That major funding for the Democratic Party comes from the financial sector apparently has spurred it toward “reform,” including privatization. The Monica Lewinsky scandal saved us from partial privatization planned by the Clinton Administration, and from cuts during the Obama Administration by intransigent Republicans, who refused the proposed “grand bargain:” to cut Social Security and Medicare in return for cuts in military spending and increases in taxes. The Fiscal Responsibility Commission set up by Obama was headed by people intent on serious cuts. Two Social Security experts on his team asked whether it was “a Social Security death panel.”[1] Fortunately, insufficient agreement within the Commission prevented the issue of a report.
Instead of its intended use as an offset to revenue losses from downturns, the Trust Fund buildup was promoted as a way to “save” Social Security for future beneficiaries. The Fund rose to a peak of $2.8 Trillion by 2017, swollen by a payroll tax on workers larger for most than what they pay in income taxes. Harvard economics professor and former Reagan adviser Martin Feldstein later described a function of the Fund. In a Wall Street Journal article, he advised “The bipartisan Social Security legislation enacted during the Reagan administration provides a useful history lesson for how to offset deficit increases.” He described how “gradually increasing the Social Security eligibility age can offset revenue loss from Trump’s tax cuts.”
Politicians and policy makers, including Alan Greenspan, chair of the Reform Committee, told us building up the Trust Fund would protect Social Security. Surprise—when the time came to use interest accumulated by the Fund in 2010, not the principal, this was taken as proof that Social Security was in crisis and needed “reform.” Social Security works best as it was intended—as a pay-as-you-go program, with the Trust Fund providing a buffer for temporary surpluses or deficits. Social Security surpluses must be spent, or they will become an economic drag. This spending has fueled the Conservative complaint that there is no fund, only iou’s. Further, the needs of the future can only be satisfied by production of the workers, machines, and technology available then; they cannot be met by money. Our economy can only prepare for the future now by investing in these resources now to raise future output and protect the environment so that the future productive system is capable of supplying the needed goods. Piling up monetary surpluses can’t supply future needs.
The case for immediate action is undermined by the impossibility of prepaying future benefits. When the Trust Fund runs out, it should not be replaced. Rather, Social Security taxes should be set to cover only current expenses. A fair proposal would be to raise the earnings cap as necessary to ensure that current expenses of Social Security are met. It would be even better to reverse the inequality and wage stagnation that have cost the system so much. What should be done to “reform” Social Security? To quote the late economist Robert Eisner, “Social Security: More, Not Less.”
