Social Security Isn’t the Key Fiscal Issue

February 25, 2011
By Tom Maertens
from The Mankato Free Press

A Gallup poll recently found that 90 percent of Americans ages 44 to 75 were more fearful of depleting their assets than they were of dying. For many of these people, Social Security is literally a life-saver. According to the Center on Budget and Policy Priorities, Social Security, with an average yearly benefit of just $14,000, provides a majority of income for more than half of the elderly.

Meanwhile, the people who saddled the country with a mountain of debt because of Bush’s tax cuts for the rich, the unpaid wars in Afghanistan and Iraq, and the unfunded Prescription Drug program, are spreading deficit hysteria. Their goal is to cut Social Security, Medicare, and Medicaid by running up the debt and then proclaiming a debt crisis. But the “debt crisis” is not so severe as to reduce Republicans’ demand for $200 billion more in unwarranted tax cuts for millionaires in the recent tax bill; only severe enough to necessitate benefit-cuts for everybody else.

As the Economic Policy Institute has explained, Social Security “is emphatically not the cause of the federal government’s long-term deficits, since it is prohibited from borrowing and must pay all benefits out of dedicated (payroll) tax revenues and savings in its trust funds.”

Franklin Roosevelt decided to use payroll taxes to finance Social Security because they gave the beneficiaries a “legal, moral and political right” to collect their benefits, he said. “With those taxes in there, no damn politician can ever scrap my Social Security program.”

The program has been adjusted over the years to account for changing demographics, especially increases in longevity. Over his two terms, Ronald Reagan raised the FICA tax from 6.65% to 7.65% and the SECA (self-employed) rate from 9.3% to 15.3% (while simultaneously cutting taxes on capital gains, dividends and interest -- rich people’s income).

Average life expectancy in 1935, the year Social Security was passed, was 61 years; it is now 78. The program will need to be adjusted again because of this greater longevity and because high unemployment resulting from the Great Recession is reducing payroll tax collections.

In addition, the December tax cut bill reduced the payroll tax by one-third, which will reduce Social Security Trust Fund income by another $200 billion.
These factors increase the need to raise the retirement age for full benefits – by one or two years -- and to reduce benefits for the very wealthy in order to ensure long-term solvency for Social Security.

Even as presently projected, however, the Social Security trust fund should remain solvent another 26 years. After that, it will continue to pay 75% of the current payout level.

Nonetheless, as Peter Orszag, the former Budget Director, wrote in the New York Times last November, Social Security is not the key fiscal problem facing the nation. Payments to its beneficiaries amount to 5 percent of the economy now; by 2050, they’re projected to rise to about 6 percent. Over the same period, federal health care costs will increase six times as much.

Conservatives argue that “doing something” about the deficit involves cutting Social Security—by as much as 41% according to the Bowles-Simpson Commission.

So far, the public has not been rolled. In a 60 Minutes/Vanity Fair poll that asked, "What would you do first?" 61 percent of respondents said raise taxes on the wealthy; twenty percent said cut military spending, and only three percent said cut Social Security.

Another recent poll showed that eight out of 10 Americans oppose cutting Social Security to reduce the deficit. That includes 78% of independents, 82% of Republicans, and 74% of Tea Party supporters.

Conservatives like to claim that the Social Security Trust Fund is broke; that it contains nothing but IOUs. Those “IOUs” are sovereign debt obligations of the U.S. government, the same as the trillion dollars of Treasury obligations that China holds, and are backed by the full faith and credit of the U.S. Government. Failure to pay them would be defaulting on the government’s obligations.

Measured over the next 75 years, the Social Security shortfall is expected to amount to 0.7 percent of the economy, a very small deficit compared to the cost of Bush’s wars or his tax cuts.

People who have worked their entire lives shouldn’t have to worry about how they will survive when they get old. Representative governments that are moral and benevolent must see to the welfare of their people, including by ensuring some modest level of security in retirement for their old and infirm citizens.

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