Don’t Be Fooled-There is an Easy Fix to Social Security

Social Security can be fixed. Easily. But the truth of the matter is that Social Security shouldn’t need fixing. The Social Security Trust Fund should currently have $2.5 trillion in surplus. But as in many such cases, Republicans have rewritten history to curry favor with their current base; even promulgating blatant lies about their own conservative icon, Ronald Reagan. 

079 Capitol Hill United States Congress 1993

079 Capitol Hill United States Congress 1993 (Photo credit: davehighbury)

 

True enough, the Social Security trustees reported earlier this year that the government pension system will be able to pay only 75% of the amount due to seniors in 2037 unless changes are made. However, because the program, by law, can’t borrow money to pay retirees, and because payroll taxes levied on workers in 25 years will cover only three-fourths of benefits, recipients will face immediate and harsh across-the-board cuts.

So what should Congress do to fund the retirement program another 75 years — most analysts’ definition of the long term — and keep it on a sustainable path after that?

And where did the surplus come from and what happened to that surplus?

Historical Perspective 

The government’s $2.5 trillion debt (the largest single creditor that America owes)to Social Security is the real reason that so many politicians want to cut benefits. They are trying to find a way to avoid having to repay the money they’ve “borrowed” from SS. The SS fund was supposedly increased via a payroll tax increase in 1983 by none other than conservative icon Ronald Reagan. In selling the plan to America, Reagan specifically designated the need for the increase in order to cover the Baby Boomers that have begun retiring recently. In Reagan’s address to the nation, he allowed House Leader, Republican Senator Howard Baker to proclaim the following:

It is perhaps one of the littlest noticed but most important aspects of the civility of American Government that on occasion we rise above politics: we rise above confrontation; and we address, on a bipartisan basis the great challenges and issues that confront the Republic. Sometimes it’s been on issues of war and peace. Sometimes it has been on issues of the rights and opportunities of minorities and individuals within our country, once on the salvation of the Union itself.

But there’s a uncanny understanding in the American political system that sometimes there are issues that are more important than any of us, or perhaps all of us, taken together. The preservation of the social security system is one of those issues. And in the uniquely American way, those of us who participate in government, Republicans and Democrats together, public and private citizens, gathered together and subordinated our own views to those of the welfare of the majority.

Mr. President, I commend you, sir. I commend the members of this Commission. I commend my colleagues in the Congress, the committees directly involved, and those members who are so intimately involved in this sensitive political issue on a successful conclusion of another chapter in the real greatness of the American political system; that is, the subordination of our own particular political ambition in favor of the greater good.”

Well of course the Republicans don’t want to pay it back. Reagan ran up huge debts tax cuts to the wealthy, which he funded with IOUs to the Social Security Trust Fund. Then, after President H.W. Bush moderately added to the deficit, President Clinton managed to squeeze out a government surplus, which he handed over to George W. Bush.

Things went a tad askew from there. GWB spent the surplus by issuing massive income tax cuts, then proceeded to drive the debt into the stratosphere by fighting two unnecessary wars with IOUs to, yes, the Social Security Trust Fund.

Now, since the Tea Party and Little Grover Norquist have coerced oaths from sitting members of Congress to NEVER raise taxes (which apparently supersedes their oath to defend the Constitution which grants Congress the right to raise taxes as needed), all the Republican spin-masters are doing everything they can to keep from paying back those IOUs; regardless of the permanent damage to America in the process, and regardless of how many promises they’ve broken along the way.

The Fix is Easy and Equitable

Removing the Social Security earnings cap virtually eliminates any funding gap. Even using relatively pessimistic assumptions about future growth in productivity and immigration, the Social Security Administration (SSA) actuaries estimate that Social Security trust fund revenues will fall somewhat short of covering scheduled benefits over the next 75 years.  President GW Bush had signaled opposition to any revenue increase to close that shortfall.  On February 16, 2005 however, President Bush indicated his willingness to consider raising the cap on income subject to the Social Security tax. SSA actuarial estimates show that eliminating the cap would virtually eliminate the projected 75-year funding shortfall.

The removal of this cap effects benefits as well: calculation of Social Security benefits are based on a formula that does not take earnings over the cap into account. Since higher income during one’s working life translates into higher Social Security benefits, removing the cap on the benefit side would increase Social Security payments to high-wage earners.

Working people pay into their Social Security account from every dollar they earn but high-income earners only pay on a fraction of what they earn. Most people don’t make enough to take advantage of this loophole, so they don’t even know about this loophole. But once you reach $106,800 of income you stop paying anything into Social Security.

So removing the cap would, of course, solve the problem of any potential shortfall in Social Security and could even enable restoring a lower retirement age, which would benefit people and help alleviate the chronic unemployment problem as well.

Patriot1776, this Bud’s for you. 

Harvey Gold

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  2 comments for “Don’t Be Fooled-There is an Easy Fix to Social Security

  1. Debbie Stover
    August 8, 2012 at 8:38 am

    Harvey
    Once again the ease at which you explain the looting of SS and the easy answer to fixing the problem helps me understand this huge problem. Thank you again for helping me understand the economics we are faced with.
    Debbie

  2. John
    August 7, 2012 at 5:17 pm

    Mr. Gold: thank you for thinking of me when you wrote this article. I agree on raising the cap and paying SS on income right along with federal income tax. If we ever did reach a point where we were over-funded (dreamer) then cut the rate a .1% or so.

    That was a long time ago when G. Bush said he would entertain dropping the cap. A lot has changed since then. More people are drawing early and less people are working.

    I agree it is a good start. do it – wait two years and re-adjust. I think the next step is raise the retirement age. I have read the program was set up on people dying in their 60’s. Now we live well beyond that.

    I think SS reform could be handled alone or part of a major overhaul. The Democrats have a history of raise taxes now – cut spending in the future. That is why a lot of republicans/conservatives balk at plans. do it all together.

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