New Jersey Governor Chris Christie, a Republican presidential hopeful, says in order to "save" Social Security the retirement age should be raised. The media are congratulating him for his putative "courage." Deficit hawks are proclaiming Social Security one of the big entitlements that has to be cut in order to reduce the budget deficit.
This is all baloney.
In a former life I was a trustee of the Social Security trust fund. So let me set the record straight.
Social Security isn't responsible for the federal deficit. Just the opposite. Until last year Social Security took in more payroll taxes than it paid out in benefits. It lent the surpluses to the rest of the government.
Now that Social Security has started to pay out more than it takes in, Social Security can simply collect what the rest of the government owes it. This will keep it fully solvent for the next 26 years.
But why should there even be a problem 26 years from now? Back in 1983, Alan Greenspan's Social Security commission was supposed to have fixed the system for good - by gradually increasing payroll taxes and raising the retirement age. (Early boomers like me can start collecting full benefits at age 66; late boomers born after 1960 will have to wait until they're 67.)
Greenspan's commission must have failed to predict something. But what? It fairly accurately predicted how quickly the boomers would age. It had a pretty good idea of how fast the US economy would grow. While it underestimated how many immigrants would be coming into the United States, that's no problem. To the contrary, most new immigrants are young and their payroll-tax contributions will far exceed what they draw from Social Security for decades.
So what did Greenspan's commission fail to see coming?
Inequality.
Remember, the Social Security payroll tax applies only to earnings up to a certain ceiling. (That ceiling is now $106,800.) The ceiling rises every year according to a formula roughly matching inflation.
Back in 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of all wages covered by Social Security. That 90 percent figure was built into the Greenspan Commission's fixes. The Commission assumed that, as the ceiling rose with inflation, the Social Security payroll tax would continue to hit 90 percent of total income.
Today, though, the Social Security payroll tax hits only about 84 percent of total income.
It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today the top 1 percent takes in more than 20 percent.
If we want to go back to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000.
Presto. Social Security's long-term (beyond 26 years from now) problem would be solved.
So there's no reason even to consider reducing Social Security benefits or raising the age of eligibility. The logical response to the increasing concentration of income at the top is simply to raise the ceiling.
Not incidentally, several months ago the White House considered proposing that the ceiling be lifted to $180,000. Somehow, though, that proposal didn't make it into the President's budget.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
- Social Security is not an entitlement, it is a contract. Paid for by workers & employers payment of the SSI tax.
- The SS Trust Fund has been raided for years by politicians trying to balance the general budget. You successfully illuminated the distinction between the fund being insolvent and its debtors being insolvent.
- The flat SS tax is already regressive, the wage cap makes it more so. The macroeconomic argument against raising the wage cap to restore solvency necessitated by shifting actuarial factors was extremely weak.
- If there are cuts to be made to restore SS solvency, let us start with other programs, such as "No Military Contractor Left Behind."
Please keep up the good work spreading these important messages.
"Now that Social Security has started to pay out more than it takes in, Social Security can simply collect what the rest of the government owes it. This will keep it fully solvent for the next 26 years. "
Where do you think this money "the government owes it" comes from? SociaI Security collects money and the government has spent it all, some in paying Social Security benefits, a lot to fund other govenment programs. In return, the Social Security "Trust Fund" has been given US Treasury securities to hold. This is the money "the government owes". To redeem these securities, the government will either borrow it from the Chinese directly or it will become part of the overall deficit, some portion of which is borrowed from the Chinese.
It is absolutely not an insurance policy, no longer sustains itself, as Bob points out clearly, and will proceed from here to dig a deeper and deeper hole every year.
leftwingnoisemachine.com
A great site.
There's an awful lot of common sense ideas that aren't making it into the President's agenda -- and most of them have to do with progressive policies that benefit the middle class.
The US is now floating, only because the phrase "full faith and credit of the US government" means something.
Welching on a debt to ourselves would be the stupidest, most self-destructive thing we could do.
There are "points of view" which range up and down the economic chain of being who think SS is evil and should go away. I have four years to go to early retirement and wonder if it will be there. Full retirement in eight years. I need early because I am working now and am being paid an unlivable wage. Probably need to start taking distributions on my IRA at 59 1/2. That's April, 2012. Watch them raise that 59 1/2. Poverty Engineering is really ramping up.
Most people understand this, but the onslaught of misinformation coming from the right is a torrent. They dominate the airways even the public ones with false claims. The PBS Newshour (to their shame) has been daily conflating debt with Social Security all week. The problem is where is our leadership? Obama either doesn't believe in the program or is a coward to defend it vigorously.