Social Security: Not Just a Pension
* Rep. Christopher Cox is worried because Social Security is “unfunded” (Orange County Voices, Feb. 21)?
Perhaps he hasn’t noticed that everything for which the government budgets is unfunded. From weapons to welfare, there is no pot of money being held in reserve. Next year’s funding will come from next year’s taxes and borrowing, just like it always does.
Cox mistakenly refers to Social Security as a “pension plan.” It is, and always has been, a pay-as-you-go system that protects against poverty and destitution in old age. And it does what no private pension does: It keeps pace with inflation with an annual cost of living adjustment and it guarantees payment for life.
Social Security also provides disability and survivor insurance which, for the average wage earner with a family, is equal to a $300,000 life insurance policy or a $200,000 disability insurance policy.
Cox is partially right in saying that if an estimated 25% shortfall does occur 33 years from now, it might take an increase in payroll taxes from the current 12.4% to 18% (9% from employee and 9% from employer).
However, what he didn’t say is that if we act now, some very modest adjustments would take care of any shortfall. A 2.2% total increase in the payroll tax right now would solve the entire problem. That is one of a number of proposed changes to help ensure that Social Security remains solvent.
Is Cox questioning the good faith and credit of the U.S. government? The Social Security Trust Fund has a surplus of more than $700 billion, which by law is invested in U.S. government securities.
The government always makes good on its obligations to Social Security, paying the trust fund back with interest, just as it does for any individual holding a government bond. Also, contrary to Cox’s assertion that the trust fund is just a bundle of liabilities, the government securities are an asset for the fund, with a legal claim upon the U.S. Treasury.
Cox’s proposal to reduce the payroll tax and require individuals to invest the difference in the stock market would require an immediate reduction in benefits and a “temporary” tax for 72 years to cover the lost revenue needed to pay current and future benefits.
For many people, particularly the disabled, and the one-third of the elderly for whom Social Security is their only income, a reduction in benefits would impose a serious hardship. And future beneficiaries would have to hope that the market wouldn’t be down when it came time for them to cash in.