As Other Income Sources Shrivel, Social Security Is Even More Indispensable

04/12/2011 12:54 pm ET | Updated Jun 12, 2011
  • Merton Bernstein Professor Emeritus, Washington University Law School; Founding Board Member, National Academy of Social Insurance

This is no time to reduce Social Security benefits. Nor will it be tomorrow. Private defined benefit pension plans are disappearing. Savings devices like 401(k)s and Individual Retirement Accounts (IRAs) lose value whenever the stock market hiccups or plunges. The principal savings of most people, their own homes, decline substantially in value or are lost entirely when the market falters. These misfortunes can and do repeat themselves.

Social Security has proven to be the one program we can rely on to provide income when other income sources dry up because of job loss, age, disability or death. Most people probably didn't know or notice, but Social Security was the first program to deliver cash benefits to families who lost a wage earner in the 9/11 attack. It also is the most readily available income source to those aged 62 and over when they lose a job. It is the most readily available income source to families who lose a wage earner to death and retirement.

Some seek to trim Social Security as part of an effort to tame federal deficits and the federal debt. But Social Security has not contributed a dime, not a nickel, not a penny to them. Social Security's three income sources pay the program's way in full. Since 1937, working people and their employers have paid a modest monthly amount of their earnings to the program pursuant to the Federal Insurance Contributions Act (FICA). Since 1983, the program has derived ample support from those contributions and two other dedicated sources of revenue -- income tax on the Social Security benefits of high earners and interest credited to the Social Security Trust Fund for tens of billions of dollars that Social Security lends to the Treasury. Treasury issues interest-bearing debt obligations in return. Some disparage those obligations as "worthless IOUs." But they are regarded as among the most dependable and valued bonds in the world. Some decry the bonds in the hand of China as a source of U.S. vulnerability. That's absurd because, as a large creditor, China has a huge stake in maintaining our ability to pay interest on those bonds and repay their principal. Moreover, the Social Security surplus makes huge amounts readily available for Treasury borrowing and thereby lowers the cost of borrowing for business, consumers and state and local government.

Some pooh-pooh the value of those bonds to the Social Security Trust Fund because it is one government agency owing money to another. But Social Security stands on an equal footing with all other creditors. A default to any would discredit our economy. It's not going to happen.

But, cry the critics, Social Security is not sustainable. They claim that its revenue collections already fall below benefit payments. That conclusion ignores the trillions in interest that Treasury owes to Social Security. Critics carp that repaying those debts will require borrowing. But that would be caused, not by Social Security -- which has already paid for future benefits, but by the two Bush tax cuts and two Bush wars. Of course, we must pay what we owe, but the wherewithal should come from those who profited most -- the upper income recipients of enormous tax breaks and war contractors like Blackwater.

Some argue that Social Security is unsustainable because the Baby Boomer beneficiary population is growing faster than the working population. You've heard the litany: in 1950 there were 15 people at work for each beneficiary; that has become 3.1 workers for each person drawing benefits; that becomes 2 to 1 in the 2020s. But each successive wave of workers is better educated and equipped with improved technology. Hence, today's and tomorrow's workers will produce more, earn more and pay more FICA per capita, offsetting the relatively smaller group contributing to the program. Other demographic, economic or technological developments, possibly in nano-technology, might cancel that factor entirely. So, the "aged dependency ratio" argument lacks the decisive impact claimed for it.

Republicans threaten to demand Social Security benefit cuts as their price for agreeing to raise the federal debt limit. Hostage takers resort to terrorism when they cannot prevail on the merits. The threat to block an absolutely essential measure -- raising the debt ceiling -- is typical of hostage takers, threatening unconscionable acts against the innocent and vulnerable. The method is despicable and should be rejected for that reason alone. Moreover, the price is absurd because Social Security benefits have nothing to do with deficits.

Starting in about 2037, Social Security benefits in full may require additional funding in order to pay full benefits. But that's an easy lift, as candidate Barack Obama made clear -- just boost the amount of pay subject to FICA to its traditional level and the prospective Social Security deficit disappears. And/or, we can boost the FICA rate by 1/20th of one percent for twenty years and the shortfall dissolves. In combination, those measures would support improved benefits.

Trimming Social Security benefits by tens of billions of dollars would mean a big hit to the income of thousands of businesses from whom beneficiaries purchase goods and services. Shrinking that business income would lead to job cuts, which would further weaken consumer purchasing power, which would lead... and so on and on.

Those concerned with private enterprise and employment -- in other words, all of us -- should support an undiminished Social Security.