There was both good news and bad news in the Social Security trustees' report released last week. The bad news is that the program is projected to cost somewhat more in the latest report than in the 2010 report.
As a result, its projected 75-year shortfall was increased by 0.3 percentage points of covered payroll from 1.92 percent to 2.22 percent. The year when it was first projected to face a shortfall was moved up a year from 2037 to 2036.
This bad news about the program is also the good news. The main reason that the program's finances deteriorated between the 2010 report and the 2011 report is that in the 2011 report the trustees assumed that we would enjoy substantially longer life expectancies than they did in the 2010 report.
They increased their projected life expectancy for men turning age 65 in 2010 from 18.1 years to 18.6 years, a gain of 0.5 years. The trustees increased their projected life expectancy for women turning age 65 by 0.3 years. Remarkably, virtually no one in the deficit-obsessed media even noticed this projected increase in life expectancy, simply highlighting the bad news about Social Security's finances.
Of course the trustees likely anticipated how their report would be received. It is important to recognize that this is the report of the Social Security trustees, not the professional staff of the Social Security Administration (SSA).
The six trustees include three Obama cabinet members, the head of the Social Security Administration, who is a holdover Bush appointee, and Charles Blahous, an independent trustee who was President Bush's point man on his Social Security privatization drive. The professional staff of SSA does make recommendations to the trustees, but these recommendations are held as carefully guarded secrets, like battle plans in the war on terrorism.
Even accepting the 2011 report at face value the picture is hardly as dire as many politicians in Washington are claiming. We have seen much worse before. For example in 1997, the trustees projected a shortfall that was equal to 2.23 percent of payroll. At that time, their projections showed the trust fund first being depleted in 2029.
The 1997 report also assumed a slower rate of real wage growth than the 2011 report. A lower rate of real wage growth meant that any tax increase that might have been imposed to maintain long-term solvency would have taken up a larger share of the growth in the real wage of the average worker. Alternatively, any cut in benefits would have done more to slow the improvement in the living standards of retirees over time. There can be little doubt that the most recent projections show a much brighter picture of Social Security and the economy going forward than what was projected through most of the 1990s.
It is also important to keep the Social Security numbers in context. Proponents of cuts to Social Security have spent fortunes on pollsters and focus groups trying to put the program's finances in the most dire possible light. They are fond of reporting things like the program's $17.9 trillion shortfall over the infinite horizon.
The focus groups show that this one is really good for scaring people. After all, "trillion" is a really huge number and $17.9 trillion must be really really huge. Of course no one has any clue what "infinite horizon" means. So no one knows that this is a projection of what the program looks like in the 23rd, 24th, and 25th century and beyond, if we never change it in any way.
The vast majority of this $17.9 trillion shortfall comes in years after 2200. Social Security does have a long planning period, but if anyone thinks that we are actually making policy for the 24th century then we should keep this person far removed from the levers of power.
The best way to make the size of the projected Social Security shortfall understandable is to put it in context. Relative to the size of the economy, the projected Social Security shortfall is equal to 0.7 percent of GDP. By comparison, annual spending on the military increased by more than 1.6 percentage points of GDP between 2000 and 2011. So the burden imposed by the wars in Iraq and Afghanistan are almost 2.5 times larger than the money that would be needed to eliminate the Social Security shortfall.
To take another point of reference, the Congressional Budget Office's analysis of the Ryan Medicare privatization plan implied that it would increase the cost of buying Medicare-equivalent policies by more than $34 trillion, a sum that is almost five times as large as the projected Social Security shortfall. If the Social Security shortfall is a really big deal, then the additional costs attributable to the Ryan plan are five times a really big deal. Interestingly, almost no one in the media seems to be talking about that burden.
There is the concept of the payroll tax in theory--a dedicated tax paid by workers which is supposed to be used exclusively for the payment of Social Security benefits.
And then there is the payroll tax in reality--a tax under which every dollar not needed to pay current benefits is diverted to the general fund and used to fund wars and other government programs.
The 1983 payroll tax increase generated $2.6 trillion in surplus revenue over a 25 year period, and every dollar of that surplus was used just like income-tax revenue for general government operations. The rich have made out like bandits as a result of the 1983 payroll tax hike. It has served to replace revenue lost as a result of the unaffordable Reagan income tax cuts. The rich are required to pay income tax on 100 percent of their income, but they are required to pay payroll taxes on only the first $106,800 of their income. Thus a person who earns $10 million in income pays exactly the same dollar amount in payroll taxes as the person who earns only $106,800. The 1983 payroll tax hike was a ripoff for working Americans. It turned out to be a bonanza for the rich. Did Reagan and Greenspan plan it that way??!!
Allen W. Smith, Ph.D.
www.thebiglie.net
FIGHT THE CAUSE - NOT THE SYMPTOM
OsiXs (Democracy 2.0)
Silly us, we thought we deserved something.:-)
Workers pay a lot of taxes that pay for retirements of a lot of groups. Social Security is the only program that is financed by the worker and their employer. No one helps us like we help others. No one has the right to touch or change our money.
The higher earners need to pay more in to pay for living 4 years longer than the average worker and drawing the highest benefits. They need to pay back not take more out.
They are doing ok.
Remove the cap of $106,000 for witholding and the problem mostly goes away.
The only lifespan number that should matter to the program is that after 66. I don't understand how a nation can double it's population but have a problem with the worker to retiree ratio. Are we accepting already retired immigrants and paying them SS? I think we are being lied to by everyone in Washington, including our President.
2. The 33% reduction in the payroll tax, enacted by ever-accommodating Obama and House Republicans late last year, almost guarantees that there will be a deterioration in the health of the SS fund.
Forget all the other tortured lies put forth by the Catfood Commission and the Koch Bros.
Actually, I don't wonder, I know they should raise taxes on the rich.
http://www.ssa.gov/history/lifeexpect.html
Life Expectancy for Social Security from the government history book:
If we look at life expectancy statistics from the 1930s we might come to the conclusion that the Social Security program was designed in such a way that people would work for many years paying in taxes, but would not live long enough to collect benefits. Life expectancy at birth in 1930 was only 58 for men and 62 for women, and the retirement age was 65. But life expectancy at birth in the early decades of the 20th century was low due mainly to high infant mortality, and someone who died as a child would never have worked and paid into Social Security. A more appropriate measure is probably life expectancy after attainment of adulthood.
Most Americans who made it to adulthood could expect to live to 65. Those who did live to 65 could look forward to collecting benefits for many years. 54% of the men could expect to live to age 65, if they survived to age 21, and men who attained age 65 could expect to collect Social Security benefits for almost 13 years (and even higher for women).
There were already 7.8 million Americans age 65 or older in 1935.
So do you think that the government should not pay your and others' US Treasury Bill money back to you with interest?
Also can small to midsize companies afford the tax increase?
You shouldn't get that much back. Earnings are divided by 35 years for figuring your check. You can draw half of what your husband draws, however.
I know one ex son in law and one friend who were paralyzed and are now drawing Social Security benefits from the disability fund.
They would have had big financial problems, if not for Social Security.
1) You won't get that much dough -- your "points" aren't very many so your net payment upon retirement (or full disability) won't amount to much. SS isn't something that pays everyone the same amount.
2) While everyone says we need to "fix" SS, the obvious technique springs to mind of what college financial aid recipients can tell you they experienced with the beginning of their adult lives -- you must demonstrate need before you get a check (or subsidy or guarantee) from Uncle Sam. Why don't we do this for SS? It irritates me that there are wealthy retirees who have no more need for a SS check than they do for the second new car in three years to pull behind their $300,000 motor home.
Oh well, our government reflects the will of the people. "We the People" are first and foremost irrational. Our system of government had enough checks and balances to thwart that ignorance and emotion from doing dumb things, but now we have "lubricated" the legislative process with a TON of money, from influence to campaign fund raising, to lobbying after serving in office. It's EASY to pass bad laws now, you just have to show the profit to the rich.
You are rewarding the people who blow and go and don't invest or save. They would get the same retirement as the savers and investors, or better, because the savers and investors would be meanstested.
The problem is, when it comes to meanstesting, the republican leaders they consider $25,000 as very high income.
Some rich people like John McCain shouldn't draw Social Security benefits since his wife brings in multi millions a year. It should be based on family income.
Other countries pay half of what we do for health care.
The government drops bombs. They have said so themselves. They quietly plan something then suddenly tell the public they did it.
The deal Obama made with the republicans to extend tax breaks for unemployment was a 'bomb'.
After reading the initial report saying SSec went bust in 2024, I was afraid I would have to start saving.
I believe Social Security was meant to be the sole source of retirement income.