Correcting Myths About Social Security

There something strange about taking advice about social programs from the very people who want to see those programs destroyed.

But that’s how the debate over the future of Social Security appears to be playing out, with politicians long opposed to the program and looking to dismantle it through privatization now doing the primary analysis and getting ready to propose the repairs.

Alan Simpson, for instance, is cochairman of President Barack Obama’s deficit commission. Simpson, a former Republican senator from Wyoming, has made it clear he believes significant reform of Social Security is needed. This should surprise no one, given his long-term commitment to shredding the retirement safety net.

Simpson has been conflating competing arguments (SS will go broke, he has said, while admitting that there still would be plenty of cash coming in — i.e., not bankrupt), as The Daily Howler has pointed out. This has left the public with the impression that the nation’s most successful social insurance program is failing.

The reality, however is far from that. The Economic Policy Institute, a liberal think-tank in Washington, has issued a policy paper meant to “dispel the myth that Social Security faces a demographic iceberg that will sink the program and our country along with it.”

“Social Security is on sound financial footing for years to come despite the Baby Boomer retirement and the worst economic downturn since the Great Depression,” according to EPI. “We should applaud this achievement while we prudently plan for the future — not weaken the only part of our retirement system that has withstood the test of time.”

The EPI report makes clear that the program’s trust fund will continue to grow until 2025, when the program will start to use reserves to pay benefits. If that happens, benefits will need to be cut 22%.

A simple fix on the revenue end, however, could help avert this, given that projections have Social Security spending leveling off and the shortfall stabilizing at about 6% of the overall economy with the shortfall amounting to just 4% of all federal government spending, according to the EPI paper. Social Security actuaries, as EPI notes, “have projected that an increase in revenues equal to just 0.6% of GDP will be sufficient to cover promised benefits over the 75-year planning period because of the savings built up in the trust fund.”

Social Security’s critics have called for drastic measures, including cuts in benefits, an increase in the retirement age and privatization, all of which would hit average working Americans. But there is a simpler and far fairer fix, as EPI notes: Raise the cap on taxable earnings beyond the current $106,800 and/or increase the payroll tax rate on both employers and employees.

“Raising the cap is an appealing option because in recent decades the lion’s share of increases in both earnings and life expectancy has gone to those at the top of the income distribution,” according to EPI. “For example, 10% of earnings were above the taxable earnings cap in 1983, whereas 16% were above the cap in 2008 (2009 Annual Statistical Supplement).

Basically, the people at the top have received most of the economic gains in recent years, so they should be the ones who pay to stabilize the system.

There is reason to believe, however, that more can and should be done. Steve Hill, in a study written for the New America Foundation, calls for an expansion of Social Security to offset the erosion of the other components of our retirement system (pensions and savings tied to home ownership).

“(T)he ‘retirement stool’ no longer is stable and secure, and suddenly Social Security, which always has been viewed as a supplement to private savings, is the only leg left for hundreds of millions of Americans,” he wrote on Common Dreams. “Studies show that people in the bottom two income quartiles depend on Social Security for 84% of their retirement income, and even the second richest quartile depends on Social Security for 55% of its retirement income. Only the richest 25% of Americans don’t rely on Social Security.”

Social Security, therefore, is “a de facto national retirement plan” that needs to be enhanced. The system’s “payout is so meager,” replacing “only about 33 to 40% of a worker’s average wage from the year prior to retirement. That is simply not enough money to live on when it is your primary — perhaps your only — source of retirement income.”

Hill suggests something more radical — something progressives should rally behind: “Instead of cutting back Social Security, what we need to do is expand it by doubling the individual payout,” he writes.

His plan: Lift the payroll cap, which “disproportionately favors the wealthy.” This would raise about $377 billion, he says, or about 60% of the revenue needed to double payouts.

A doubled payout would then free employers “from providing retirement for their employees,” ending the need for “the substantial federal deductions they currently accrue for providing employees‚ retirement plans.” This would generate another $126 billion annually.

The remaining $150 billion or so needed to pay for what he calls Social Security Plus would come from a reduction or elimination of “other unfair deductions in the tax code that allow higher income people to reap generous deductions that low and moderate income Americans can’t enjoy. These include deductions for private retirement savings, homeownership, health care and education.”

Critics of Social Security, who have donned the cloak of being deficit hawks, are likely to howl, but such a change is likely to have larger economic benefits, Hill says.

“An expansion of Social Security — one of the most successful, stable and popular programs in US history currently celebrating its 75th year — not only would be good for retirees but also for the macro-economy,” he says.

“It would keep money in retirees’ pockets and stimulate consumer demand; act as an ‘automatic stabilizer’ during economic downturns; and make retiree benefits portable when changing from one job to another. It also would help American businesses trying to compete with foreign companies that don’t provide pensions to their employees, since those countries already have generous national retirement plans. And it would be broadly fair, since even those higher income Americans who are losing their tax deductions would see part of it returned to them in the form of a greater Social Security payout.”

It’s time progressives moved from defending the program to fighting for its expansion.

Hank Kalet is a poet and newspaper editor in New Jersey. Email; blog,

From The Progressive Populist, September 15, 2010

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