The recession has had victims across generations, from retired Americans who have lost value on homes and stock investments and need to go back to work, to those planning to retire soon, who now find they can't, to recent graduates, who are looking for jobs, but find there are no openings. The President and some members of Congress are sounding alarm bells about the deficit, and targeting Social Security for cuts. But cutting Social Security will not solve any of the above problems.
Social Security is not in crisis, despite the alarmist rhetoric. Don't be fooled. The Social Security surplus, often referred to as the Trust Fund, is $2.4 trillion dollars. It's enough to continue to pay out benefits through 2037, without a single change, and the funding was planned this way because we knew the boomers would create a bubble when they began to retire, requiring a surplus. In the recent past, the federal government has borrowed from the surplus, which is counted as part of the national debt. It's been used to pay for wars, bank bailouts, and Bush-era tax cuts. But we can't reduce the debt by defaulting on those notes. It's our money, we paid in, and the government owes it back to us.
It's the recession, stupid. Some are trying to use recent Congressional Budget Office numbers to heighten overreaction. It's true that this year, Social Security is paying out in benefits more than it is taking in (it's a tiny amount - 0.012% of the surplus). This isn't because of poor planning, it's because of the recession. We all know many people have been laid off or had hours cut. Fewer people working means fewer paychecks from which to make Social Security contributions. Some people who were planning to retire now are finding they can't afford to - with 401(k)s having lost so much value, homes having lost value, and banks being out of the business of lending, the funds people planned to use in retirement aren't there now. Others who planned to retire in a few years found themselves forced into early retirement or unemployed. Those forced into early retirement are drawing from Social Security earlier than planned, which contributes to this year's imbalance between contributions and payouts. This isn't because the formula is bad, or the program is underfunded, but because of the recession. As the economy recovers, this problem will resolve itself.
Because of the recession, those who are still employed are finding they cannot retire as planned. The money just isn't there, and Social Security payments averaging $13,800 per year - about $11,000 for women - just aren't enough for many people to survive on. So Americans who would have retired aren't. That results in fewer jobs being available to the next generation of workers. They can't get in, especially in a market with fewer jobs to begin with, if older workers don't retire, letting others move up, and creating new openings at the entry level.
Two birds with one stone: We can strengthen Social Security and reduce unemployment in one go; by lowering the retirement age and modestly increasing benefits, older workers who were hoping to retire will be able to, and this will open up job opportunities for recent graduates desperate to enter the labor market. We can pay for all of this by eliminating the Social Security income tax cap, which would only impact the 6% of individuals (not households) with over $106,800 in annual income. Lower unemployment. A secure retirement with more money going into Social Security. Steps toward ending the recession. This plan addresses all the problems identified at the start.
Younger Americans want to work. Many older Americans want to retire. We can strengthen Social Security and reduce unemployment by making the above changes, and ultimately, these steps will help reduce the deficit as well.
Check out SocialSecurityMatters.org for more info.