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On January 31, 1940, the United States government cut a check for $22.54 to a 65-year-old woman from Rutland, Vermont, named Ida May Fuller. Ms. Fuller, who had spent most of her career as a legal secretary, was the first American to receive a monthly Social Security check.  (AP Photo/Robert F. Bukaty) Judith Odyssey sets up her weekly medication, in Hartford, Maine. Odyssey, who has congestive heart problems, fibromyalgia, asthma, and arthritis, gets $674 a month in Social Security.Social Security was passed into law in 1935 to address a very specific problem: At the time, poverty was the norm among senior citizens. Without the ability to earn an income, most quickly found their savings wither, and if they survived long enough, were unable to support themselves. Although data from the 1930s are difficult to find, by some estimates, more than 75 percent of elderly Americans lived in poverty during that time (see here for a discussion of some studies on the issue). Social Security changed that, and when it was supplemented by Medicare in 1965—meaning that seniors no longer had their savings wiped out by medical bills—the face of poverty in America changed dramatically. Less than 10 percent of seniors live in poverty today. But despite its enormous success, in recent months, some Republicans have gone from grudging acceptance of Social Security to outright hostility, and leading the pack is Texas governor and presidential primary front-runner Rick Perry. In print and in person, Perry describes Social Security as an unconstitutional “Ponzi scheme” and calls the idea that younger workers will be able to count on getting benefits “a monstrous lie.” Spreading the idea that young people can’t expect to receive Social Security benefits has the dual effect of making them more willing to accept radical changes to the program and undermining Social Security’s intergenerational commitment, which derives from the fact that the benefits of current retirees are paid for by the taxes of current workers. But if you think that you’re paying taxes for a program that is “going broke” (another phrase you often hear) and from which you’ll never benefit, why not toss it aside? Years of this kind of rhetoric seems to have had an effect: According to polls, as many as three-quarters of young people don’t think they’ll ever receive Social Security benefits. Now, the reality: Social Security is not going broke, and it is not in crisis. A few decades from now, it will experience a modest shortfall in its ability to pay benefits, a problem that can be solved with minor changes. For many years now, Social Security has taken in more in taxes than it pays in benefits. The surplus creates the “Social Security trust fund.” As the large baby-boom generation retires, more and more of that trust fund will be used to pay the boomers’ benefits, just as it’s designed to do. Eventually—the Congressional Budget Office projects the date at 2040, the Social Security trustees say 2036—the surplus will be exhausted, and benefits will be paid only from current taxes. At that point, the system will have enough to pay most benefits but not all—around 76 percent. Use slightly more optimistic assumptions about factors like future immigration and economic growth in your projection, and the trust fund doesn’t run out until 2060 or later. In any case, it would certainly be a bad thing to have retirees 30 years from now get only three out of the four dollars they expect from Social Security. But that’s very different from the picture painted by those who claim the system will be “broke” or that the notion that future retirees will getanything at all is a “monstrous lie.” Just as Social Security’s problems are much smaller than some would have us believe, the fixes are fairly simple as well. The CBO detailed them not long ago. We could increase the Social Security tax (currently 12.4 percent, split equally between workers and employees) by 2 percentage points, slowly phasing in the increase over 20 years. That would cover the entire shortfall. Or, we could also raise the cap on the earnings on which Social Security taxes are paid; currently, you pay the tax on your first $106,811, but not on any wage income beyond that. Raise that cap to $250,000, and you’ve covered almost the entire shortfall; take the cap off entirely, and you’ve solved the problem one and half times over. There are plenty of other adjustments that could be made as well, and we could pick some combination of them. One thing that isn’t necessary, however, is to undo the entire promise of Social Security. But that’s exactly what some people want to do. In recent years, the typical American’s retirement plan moved from a “guaranteed benefit” pension that pays a set amount every month to a 401K whose benefits are dependent on the ups and downs of the stock market. This is essentially the model many Republicans would like to use for Social Security: change it from a safety net to an investment vehicle. Yes, if you retire at a time when the market is down, you might lose the only income you have. But hey, if your timing is right, maybe you’ll get rich. At its core, this debate is about a profound philosophical divide. Should we have a safety net for seniors, or not? The public’s answer to that question has been clear for 70 years, and few Republicans want to disagree directly. But by painting Social Security as irredeemably broken and exaggerating its practical challenges, they can undermine the intergenerational compact on which it rests. “By any measure,” Rick Perry wrote in his book, “Social Security is a failure.” If you believe that government helping seniors avoid poverty is a problem and not a solution, I suppose you might think that’s true. The Prospect tries to foster a constructive, respectful dialogue in its comments. Disagreement is permitted; incivility is not. Please refrain from personal attacks and name-calling. | ||||
Life takes us in many strange directions and wonderful discoveries. It never turns out the way we thought it would.
Friday, September 23, 2011
Social Security Is Not A Ponzi Scheme
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