When Factcheck.org recently cited the government's own budget agencies in reporting that Social Security will pay out more than it collects in taxes this year and therefore will add to the deficit --the response was vitriolic. Factcheck's Brooks Jackson reported that people accused Factcheck of being "stupid, ignorant, misleading, misinformed, unfair, partisan and naive."
As Factcheck found out, the question of whether Social Security is part of the federal government's deficit problem has become a point of bitter debate. Social Security is one of the most important and beloved programs in the country, and arguably one of the most effective. Millions of Americans depend on it, and millions more support it.
Unfortunately, rather than having a debate about how to protect it for the future, experts have split into fierce camps arguing over whether Social Security should be fixed for its own sake -- to preserve the support it provides to older Americans -- or because it will contribute to the government's growing financial problems.
But let's take a step backwards and ask a radical question: Does it really matter ?
- Raising the payroll tax
- Lifting the income cap on Social Security taxes, so that people with higher salaries pay Social Security tax on more or all of their income (This year the cap is just under $107,000).
- Gradually raising the retirement age over time
- Changing how cost-of-living benefits are calculated, basing them on increases in prices instead of wages, for example.
- Changing how basic benefits are calculated gradually reducing them over time (This idea is often proposed only for middle- and higher-income people--not for older people who need every single penny of Social Security to get by)
If on the other hand you want to fix Social Security because you're concerned about the rising national debt and because escalating health care costs and an aging population have put the budget on an unsustainable course, then your options are:
- Raising the payroll tax
- Lifting the income cap on Social Security taxes, so that people with higher salaries pay Social Security tax on more or all of their income
- Gradually raising the retirement age over time
- Changing how cost-of-living benefits are calculated, basing them on increases in prices instead of wages, for example
- Changing how basic benefits are calculated gradually reducing them over time, especially for middle- and higher-income people
In practical, budgetary terms, the options on the table are the same either way.
Now lots of people who care very deeply about this debate don't see it that way . There's a perception that if you see Social Security as a deficit problem, then you're more likely to favor cutting benefits, or even the radical (and expensive) option of moving to private 401K-type accounts, while if you see the issue as preserving the program, you're more likely to favor raising Social Security taxes.
In some respects, you can understand the resentment and suspicion among Social Security advocates when they see the program portrayed as a cause of the country's financial problems. After all, until quite recently, Social Security was collecting more in taxes than it needed to pay out for benefits, and the government was using the "extra" Social Security income to pay other bills and cut taxes.
Yes, there is a Social Security Trust, and by drawing on it, Social Security can pay all promised benefits until 2037. But the Trust Fund actually consists of about $2.6 trillion worth of special Treasury bonds that the government placed into the Fund while it was using Social Security taxes for other purposes. Now Social Security needs the money back, and the U.S. government is already operating in the red. That means we'll need to cut other spending, raise taxes, or borrow even more money to meet our obligations to Social Security.
People are often angry when they realize this, and we aren't about to defend the politicians from both parties who used Social Security funds to paper over government's appalling lack of financial prudence for years. Even so, most of us cheered for lower taxes and gave our thumbs up to more spending too. We didn't ask tough questions.
Up until now, Social Security's revenue has helped us avoid tough decisions on the budget. Now the bill has come due, and we're obligated legally and morally to pay back the Trust Fund. Unless we raise taxes or cut spending elsewhere, we'll have to add to the deficit to do it.
So the anger and lack of trust are perfectly understandable. Unfortunately, just being angry won't do us any good.
If we keep denying the dilemma, we'll end up postponing decisions on Social Security which will make its now manageable problems harder to solve. Nearly every idea out there for strengthening Social Security's finances -- collecting taxes on more of high earners' incomes for instance -- works better if you start while most of the huge baby boom generation is still working. The sooner you raise taxes, the more money you bring in. What's more, options like trimming benefits for the more affluent or moving the retirement age back will be fairer and more acceptable if people have time to adjust.
The reality is that we need to solve our budget problems and guarantee Social Security's solvency for the future. It's time to get started on both.