Social Security Is Still Secure
Various myths died Sept. 11. Among them was the myth of a “lockbox” in which the Social Security surplus (the trust fund) would be “saved.”
Of course there never was such a thing. But it sounded good. Politicians could pose as defenders of Social Security. They would lock up (“save”) the surplus by using it to pay down debt.
No one is talking lockbox now. This does not mean that the trust fund is being squandered. The Social Security surplus must, by law, be loaned to the government, through the purchase of U.S. Treasury bonds. Whether it is used to pay down debt or pay for a war, every penny is paid back with interest, earning billions of dollars for the trust fund.
Until 1983 there was no huge surplus. Social Security was a pay-as-you-go system with modest reserves. Then, in 1983, Social Security appeared to be facing insolvency within 18 months. The primary cause was the unexpected and dramatic increase in the number of people taking early retirement when it became possible to retire with reduced benefits at age 62.
The Greenspan Commission was convened to deal with the impending crisis. That was the beginning of the ever-expanding surplus. The payroll tax was raised 42%; the age for full retirement benefits was changed to gradually increase from age 65 to age 67; and benefits began to be taxed for the first time.
For almost 50 years before 1983, even as the ratio of workers to retirees dropped dramatically, benefits were expanded nine times to extend coverage to previously excluded workers. Disability insurance was added and an annual cost-of-living adjustment was legislated.
The payroll tax increases in 1983, coupled with benefit reductions, were so extensive that Social Security benefits will be funded, without any changes, for the longest period in its history.
Yet think tanks and policymakers have created widespread concern that Social Security is going broke. The reality is an actuarial calculation of a possible 25% shortfall over three decades away.
The very conservative actuarial assumptions used to predict economic growth, birth rates, immigration, wages and unemployment cause each new year’s prediction to move the date for possible insolvency farther into the future--the latest date being 2038--yet there is much talk about the need to “save” Social Security.
Partial privatization has been the most heavily promoted proposal. This calls for reducing benefits and making every worker an investor in the stock market. But the Enron debacle coupled with the declines in the stock market have temporarily quieted the most vocal advocates of this approach.
Additionally, the bipartisan committee appointed by President Bush failed to come up with a viable plan for privatization. Covering the loss of payroll taxes during the decades-long transition period proved to be an insurmountable obstacle.
They also failed to address who would bear the risk for people facing poverty, even destitution, as a result of bad investment decisions, bad luck or Enron-style chicanery.
Disability and Survivors Insurance have also been conspicuously absent from any discussion of privatization. About one in three Social Security beneficiaries is not a retiree. Of the more than 262,000 Social Security beneficiaries in Orange County, about 85,000, many of them children, are receiving Disability or Survivors Insurance. More than $266 million in Social Security benefits are paid to Orange County residents every month. About $1 in $5 goes to a nonretiree.
Most other proposals for changing Social Security, such as changing the Consumer Price Index or increasing the number of years used to calculate benefits, either directly or indirectly reduce benefits. And in spite of the fact that about 80% of workers retire before age 65 (most at age 62), policymakers continue to favor raising the retirement age even further--to age 70.
There are, however, several proposals for eliminating possible shortfalls that do not involve a reduction in benefits.
For instance, no payroll tax is taken from wages above $84,900, yet workers too poor to pay income taxes are taxed on every cent they earn. Essentially, the payroll tax is a flat tax with an exemption for the wealthy. Raising the cap on this tax could eliminate as much as 90% of a projected shortfall.
Before rushing to make any changes in a successful and enormously popular government-run program, we should keep in mind that economists can’t even predict deficits and surpluses several years in advance without making embarrassing errors. Look backward 36 years. Was anyone in 1966 accurately predicting economic conditions for the year 2002?
We should also consider what happened to California when influential lobbyists convinced the entire California Legislature that electricity needed deregulating.
Is there any evidence that elected officials in Washington are any freer of lobbying influences or more knowledgeable about a complex issue than California legislators were when they plunged us into the electricity crisis?
