By:
Max Skidmore
As I mentioned earlier, the reaction to Social Security is perhaps the most glaring and irrational of all the obvious irrationalities of Republican conservatives. The program is enormously efficient, with administrative costs less than one cent of each dollar it receives in income. It is arguably the most popular government program in American history, and is far more than a mere retirement program, because it also provides life insurance and coverage for disability.
Not only do some 64 million Americans receive Social Security checks, the checks help beneficiaries of all ages. Almost a third of America’s Social Security checks go to people younger than retirement age. Of retirees, about half of retired couples count on Social Security for half or more of the total income. Of retirees who are unmarried, even more, some 70% get half or more of their income from the system. To put it another way, almost 9 out of 10 Americans who are 65 or older receive Social Security benefits. More than a fifth of retired married couples, in fact, and almost half of elderly singles, receive almost no income except Social Security, which accounts for 90% or more of all their income.
Although there certainly are complexities involved, Social Security’s fundamental principles are quite simple. Wages in covered employment up to $142,800 (for 2021; it varies annually) are subject to a 6.2% tax (FICA). Most employment in the U.S. is covered. The employer matches the amount deducted from wages. That means that an amount equal to 12.4% of each employee’s wages goes into trust funds; a portion of that payment goes to the Disability Insurance Trust Fund, and the rest to the Old-Age and Survivors’ (OASI) Trust Fund. Benefits for eligible retirees, eligible spouses, other dependents, and the disabled are paid out from the trust funds. The small administrative costs of the system also come from the trust funds. The remainder is invested in government bonds. Those bonds regularly pay interest back into the trust funds.
Remember this also: Social Security’s benefits are inflation protected. They do not lost value as prices rise, and keep pace with inflation, Moreover, one cannot “outlive” Social Security payments, as can happen with private savings. The payments continue, inflation protected, as long as the beneficiary lives.
Think of the enormous damage that would occur if its opponents managed to do away with Social Security. Think of the millions of Americans who are kept above the poverty line because of Social Security. Among retirees, that figure is around 38%, or more than a third of all retirees in the United States, who would be thrust into extreme poverty without their Social Security.
By law, benefits must come from the trust funds. If the balances in the funds, including incoming monies, were ever inadequate, benefits would be reduced. If that were to happen, though, there would be so much pressure that Congress surely would boost FICA rates to cover the shortfall.
In no instance, do Social Security benefits come from general revenues. Thus, those budget hawks who argue for benefit reductions to help “balance the budget,” either do not understand how the system works, or are deliberately being deceptive. Under current law, reducing benefits would simply build up larger trust fund balances; it would not affect the deficit.
In other words, balancing the budget by reducing benefits would require a change in the law that would divert Social Security money away from the trust funds. That is, workers still would pay for Social Security, but instead of receiving promised benefits, their payments would go to subsidize the wealthy, who profit from steady reductions in their rates of taxation.
Those advocating austerity, if they even think about it, apparently consider this to be fair¾that is, low to middle income workers would be expected to have “skin in the game,” and do the lion’s share of reducing the deficit that results from continuing reductions of tax on the wealthy. That certainly would be wealth redistribution, but it would be redistribution upward; diverting income away from those who have less to those who control the vast majority of wealth in the American economy.
It is correct that for some years reported projections have called for the trust funds to be depleted, usually in the 2030s. The projections come from the annual reports of the Board of Trustees of the trust funds. The Board consists of four ex officio members: the secretaries of health and human services, of labor, and of the treasury along with the commissioner of Social Security. Additionally, the full board includes two more members appointed from the public. If the reported shortfalls were to materialize, at the worst, benefits could be reduced¾and the reduced benefits still would be greater than today’s benefits. Reductions could easily be avoided: taxes could be increased slightly, for example, or the cap on earnings subject to FICA could be raised. Better yet, the cap could be completely removed.
In any case, despite many of the experts, I submit that the worst scenario is unlikely to happen. All the reporting relies on the Trustees’ “Intermediate,” or “alternative II” projections. The reporting virtually never reveals that the reports each year include three projections, not merely the Intermediate. Alternative I is the “low-cost” projection, and it almost always calls for no shortfall. In the past, the performance of the trust funds have generally been closer to the low-cost projection¾the one that projects no shortfall¾than to the more pessimistic one. In fact, recently, even during the pandemic, the trust funds have performed better than the Intermediate projection would have it. Despite this, only the Intermediate projection, with its persistent shortfalls, forms the basis for virtually all reported information on the program’s future.
The Trustees, in fact, produce three separate projections. They say that the Intermediate one is the one they believe most likely to come to pass, but caution that these are simply estimates, not prophecies.
Their Alternative One, or “low-cost” projection, generally calls for no shortfall at all (to be precise, in the 2020 report, it does call for a small and brief shortfall in the 2080s, but that shortfall quickly vanishes). Hardly anyone, though, has heard of a projection other than the Intermediate. One indication that the Intermediate Projections tend to be too pessimistic, is that even during the pandemic, the trust funds have performed far better than the reported projections have anticipated.
So the question of Social Security’s sustainability is certainly one of political will, not economics. The American economy can easily handle any feasible circumstance. The shortfall from Republican tax cuts, for example, is far greater than any of the Intermediate projections for Social Security.
Thus, the future appears quite bright. Most of what people hear about Social Security’s sustainability is influenced by conservative propaganda that reflects billions of dollars spent to convince the public that Social Security “won’t be there when you retire.” If you hear nonsense about immigrants, even illegal immigrants, come into the country and immediately begin to collect Social Security, what you are hearing is not only wrong, but it completely misrepresents how the program functions. No one collects Social Security unless it is based on a worker’s wages. All benefits are based on a worker’s having worked in covered employment. Ten years of wages are required.
Social Security is not “going broke.” If the trust funds were depleted, there still would be money coming in to finance benefits. “Bankruptcy” is not an appropriate term for a program of the federal government that cannot “go broke,” since it can create money as it needs it to pay any bills that it incurs. Remember, when you hear dire warnings about Social Security, those warnings are almost assuredly the result of well-financed propaganda from Social Security’s opponents. Ignore them.