In the coming days and weeks we'll be hearing a lot of misinformation about the Trustees Report from the Social Security Administration. It's time to separate the myths from the realities:
1. Myth: "Social Security and Medicare have a cost problem."
Fact: Medicare has a financial problem. As this chart shows, the cost of providing Social Security benefits is not out of control or skyrocketing.
2. Myth: "Aging workforce strains Social Security, Medicare"
Fact: That's a headline we saw repeated across the country in anticipation of the Trustees Report, but it's wrong. What's "straining" Social Security and Medicare today is the unequal distribution of income and a broken regulatory system for Wall Street that has put the entire economy under stress.
Social Security was actuarially stable after it was overhauled by the Greenspan Commission in the 1980s. The baby boomers were all alive and (mostly) working by then. So what really happened?
First, a radical upward shift in income toward the "1 percent" -- and the "0.0001 percent" -- meant that more and more of the nation's income was above the payroll tax cap threshold. That reduced the revenue for Social Security (and much of Medicare) from a projected 90 percent of national income to a figure that's closer to 83 percent.
Secondly, a financial crisis brought on by reckless and under-regulated Wall Street banks crashed the economy in 2008. For millions of Americans it has never come back. Joblessness, along with wage stagnation for the "99 percent," further depleted the programs' revenues.
3. Myth: We need to place limits on Medicare spending and cut its benefits.
Fact: That's like saying the way to end forest fires is by firing Smokey Bear. Benefit cuts and spending caps won't solve our health cost problem. There has been an explosion of for-profit hospital chains in the last twenty years, along with profit-driven laboratories, imaging centers, and other types of health providers.
In addition, our system of reimbursing physicians provides an incentive for them to treat more and charge more for their services. That's costly -- and it subjects patients to a lot of unnecessary tests. On top of that, the lion's share of our health economy is "managed" by for-profit insurance companies who have little motivation or skill when it comes to prudent fiscal management.
If we expand Medicare to our entire population we'd have a health system like that of all other industrialized countries -- whose health costs are roughly 60 percent of our own and grow more slowly than our own. Medicare's cost problem would be solved.
By contrast, the solutions being floated in Washington wouldn't fix the problem -- they'd just dump it onto the backs of seniors and the disabled.
4. Myth: We can't get our federal deficits under control without cutting Social Security benefits -- either by raising the eligibility age, placing gimmicky limits on cost-of-living adjustments, or all of the above.
Fact: Social Security is forbidden by law from contributing to the federal deficit. It's an entirely self-sustaining program. If the day comes when it can't pay its full scheduled benefits, those benefits must and will be cut. This is a phony argument.
5. Myth: Too many millionaires are collecting Social Security and Medicare, so we should means-test and deny them these benefits.
Fact: The number of actual "millionaires" on Social Security and Medicare is tiny, by any objective measure. It wouldn't have any significant impact on their budgets to exclude them -- although it would help a lot to tax them.
(Oh, we can't do that! say the "centrists.")
What's more, Medicare and Social Security are social insurance programs. By definition, insurance shouldn't be means-testing like welfare and other aid programs, because you've already paid your premiums. The "means-testing" argument is often used to mischacterize these programs as "welfare," instead of what they really are: Something people have paid into through the payroll tax throughout their working lives, and (in Medicare's case) which they've also supported through their taxes.
6. Myth: Social Security benefits are too generous. They need to be cut because we can't afford them.
Fact: Our Social Security benefits are lower than those of nations that are economically similar to the US. As we said, the current reductions in revenue were caused by 1) an upward distribution of wealth to the "1 percent" and 2) a financial crisis brought about by Wall Street greed and speculation.
That suggests two possible solutions to Social Security's 20-year-from-now problem: 1) Lift the payroll tax cap, and/or 2) impose a small financial transactions tax on Wall Street and use it to make up the Social Security shortfall. Either of these approaches would solve the problem.
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future and the host of The Breakdown, broadcast Saturdays nights from 7-9 pm on WeAct Radio, AM 1480 in Washington, D.C.
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
Jared Bernstein: Social Security Trust Fund Exhaustion: A Moving Target
Either these are mutually exclusive options or you're talking out of both sides of your mouth.
As SS starts running in the red year after year, however, the trust fund will start cashing in those securities ahead of maturity to make up the difference. These will be redeemed with money from the Treasury. Because the Treasury is already running deficits, having to to redeem SS's securities would thereby increase the deficit since the government would have to borrow money elsewhere to pay off the debt. The intragovernmental debt would in this way be converted into public debt. So yes, on the present course, SS will worsen the deficit.
As it stands now, no - SS is not a factor in the deficit, and with prudent modifications, it never will be.
Some object to this by contending that it doesn't change the debt because debt is just being exchanged for debt and this much is true. SS is included in the overall national debt. But the type of debt is important, going from intragovernmental to public. Congress can just cancel any or all of intra-governmental debt by fiat and it will have little effect on bond markets. Convert it to public debt, though, and it's money the government now owes to somebody else and it cannot be canceled without jeopardizing the full faith and credit of the U.S.
Does no one else see the large contradiction in this statement? It goes to show that reform is needed.
2011 OASIDI Trustees Report indicates that by 2036 the Social Security trust fund will be exhausted (http://www.ssa.gov/OACT/TR/2011/II_D_project.html). It is a problem that only three quarters of benefits will be paid.
Reform must take place: either by raising the wage cap, by increasing the retirement age to keep pace with longevity, by means-testing and eliminating benefits for very high income seniors, or by some combination of these proposals.
We also can save Medicare by saving our environment, since many illnesses are created by pollution. Also ending government subsidies on beef and pork, as well as taxing anything made of refined sugar, would help create healthier diets.
I will also add that the ACA rewards best practices - That also cuts back on medical expenses.
Rather than shutting down Medicare, let's improve it.
That's what Romey did as CEO of Bain Capital. That's what he plans to do again.
If you depend on Social Security and Medicare, be forewarned. If you vote GOP, you will lose all the money you put into these programs. By voting GOP, you will sign your own death warrant.
Now if the Govt says they blew my money and nothing is there - I will start repossesing Federal Govt property/money until the debt is paid, which is completely legal, and will defend myself from any and all criminals that stand in my way.
Means testing, besides being irrational in an insurance program - it would convert SS into a welfare program - would do very little to help the potential insolvency issue. Raising the cap on income subject to tax raises the cost to a small percentage of well-off citizens and fixes the problem for the entire nation for the foreseeable future.
The sky will not fall if we ask a few people to pay a little more for their insurance. Especially people who already draw an obscene amount of income. There is too much money in too few hands for the well-being of this country as it is.
Let's at least pretend we care about social equity, ok?
They are much more likely to accept the misinformation and ignorance peddled on Fox Entertainment channel 24 hours a day, and vote against their very own financial interests.
Thank you, Mr. Eskow, for this fabulous article. Will forward it to all of my friends and family.
Greenspan helped the Reagan admin pay for the deficits created by trickle-down back in the early 80's by raising the SS tax (a regressive tax) and then "lending" a lot of that to what was thought to be the most trusted borrower in the world, the US govt. The firewall that COngress created back in the 30's that stood between the SS fund and the general fund was basically breeched under the guise of a program to improve the health of the fund (man, did that backfire).
But the deficits only existed because of the tax cuts to the wealthy. So to sum it all up, a big chunk of the overall tax burden was shifted away from the wealthy and onto the backs of the middle class, present and future. The SS fund finally ran dry in 2004 at which point we started to borrow from the Chinese.
You're right, its a pay-as-you-go system now. Greenspan and the rest of the GOP managed to foil FDR in the end.