Experts: Contrary to Mainstream Myth, 'Social Security is Strong' and Could Be Made Stronger
Lifting the payroll tax cap and better coverage by journalists would help build sustainable future for essential program
The Social Security trust fund is in strong financial standing
and the overall program could be further strengthened, say experts and
lawmakers, with a simple increase of the current payroll tax cap which
is currently set at $110,000. The trustee's annual financial report was released on Monday.
"The most effective way to strengthen Social Security for the next 75
years is to eliminate the cap on the payroll tax on income above
$250,000," says Senator Bernie Sanders. (Image: Care2.org) Most
mainstream news and media outlets reported the trustee's report as a
'doomsday' scenario for the benefit program, which was created in 1935
and today supports 55 million Americans, including 38 million retired
workers, 6 million widows, widowers and orphans, and 11 million disabled
workers. But those reports belie a simple solution to improve the
longevity and solvency of the program, and speak to a trend of
poor-quality reporting when it comes to the issue of Social Security.
“The most effective way to strengthen Social Security for the next 75 years is to eliminate the cap on the payroll tax on income above $250,000. Right now, someone who earns $110,100 pays the same amount of money into Social Security as a billionaire. That makes no sense,” said Vermont Senator Bernie Sanders, the chairman of the Defending Social Security Caucus. He also chairs the Senate aging subcommittee.
Robert Greenstein, founder and President of the Center on Budget and Policy Priorities, responded to the report by noting that although the program does warrant some adjustments, Social Security "faces no imminent crisis." In fact, he argues, the revenue loss from a permanent extension of the Bush tax cuts (already extended by President Obama) for people making over $250,000 — the top 2 percent of Americans — would itself be nearly as large as the entire Social Security shortfall over the upcoming 75-year period. "Members of Congress cannot simultaneously claim that the tax cuts are affordable while the Social Security shortfall constitutes a dire fiscal threat," he said.
"Projections in the 2012 Trustees Reports come as no surprise to anyone who understands how Social Security and Medicare work," Max Richtman, president of the National Committee to Preserve Social Security and Medicare, said in a statement. "The trust fund solvency date for Social Security has seen fluctuations many times in recent decades, from a depletion date as distant as 2048 in the 1988 report to as soon as 2029 in the 1994 and 1997 reports. This year's report is well within that range. Contrary to the crisis myths perpetuated by fiscal conservatives and many in the media, the prevailing facts show once again that Social Security remains among the nation's most successful and stable programs. The Trustees report there is now $2.7 trillion in the Social Security trust fund, which is $69 billion more than last year, and continues to grow. Payroll contributions and interest will fully cover benefits for decades to come."
"Contrary to the crisis myths perpetuated by fiscal conservatives and many in the media, the prevailing facts show once again that Social Security remains among the nation's most successful and stable programs." -Max Richtman, NCPSSM
Dean Baker, co-director of the Center for Economic and Policy Research, writes today, "The main reason that the program's finances have deteriorated relative to the projected path is that wage growth has not kept pace with the path projected. This is in part due to the fact that productivity growth slowed in the 80s, before accelerating again in the mid-90s and in part due to the fact that much more wage income now goes to people earning above the taxable cap. In 1983 only 10 percent of wage income fell above the cap and escaped taxation. Now more than 18 percent of wage income is above the cap."
And Trudy Lieberman of the Columbia Journalism Review, writing recently on the continued failure to present -- much less advocate for -- the payroll tax cap solution, lamented, "that option is not on Washington’s table, nor has it been discussed much in the press. Why not? Because it doesn’t fit into the doom-and-gloom narrative that has proved politically expedient to tell."
Senator Bernie Sanders is one of the program's staunchest advocates in Washington. (File)
The revenue loss over the next 75 years from making those tax cuts permanent would be about two times the entire Social Security shortfall over that period.
For nearly three years CJR has observed that much of the press has reported only one side of this story using “facts” that are misleading or flat-out wrong while ignoring others. Whatever the reason—ideology, poor understanding of how the program works, gullibility, or plain old reportorial laziness—news outlets have given the public a skewed picture of the financial health of this hugely important program, which is the sole source of retirement funds for millions of Americans and will continue to be for decades to come.
"The most effective way to strengthen Social Security for the next 75
years is to eliminate the cap on the payroll tax on income above
$250,000," says Senator Bernie Sanders. (Image: Care2.org) Most
mainstream news and media outlets reported the trustee's report as a
'doomsday' scenario for the benefit program, which was created in 1935
and today supports 55 million Americans, including 38 million retired
workers, 6 million widows, widowers and orphans, and 11 million disabled
workers. But those reports belie a simple solution to improve the
longevity and solvency of the program, and speak to a trend of
poor-quality reporting when it comes to the issue of Social Security.“The most effective way to strengthen Social Security for the next 75 years is to eliminate the cap on the payroll tax on income above $250,000. Right now, someone who earns $110,100 pays the same amount of money into Social Security as a billionaire. That makes no sense,” said Vermont Senator Bernie Sanders, the chairman of the Defending Social Security Caucus. He also chairs the Senate aging subcommittee.
Robert Greenstein, founder and President of the Center on Budget and Policy Priorities, responded to the report by noting that although the program does warrant some adjustments, Social Security "faces no imminent crisis." In fact, he argues, the revenue loss from a permanent extension of the Bush tax cuts (already extended by President Obama) for people making over $250,000 — the top 2 percent of Americans — would itself be nearly as large as the entire Social Security shortfall over the upcoming 75-year period. "Members of Congress cannot simultaneously claim that the tax cuts are affordable while the Social Security shortfall constitutes a dire fiscal threat," he said.
"Projections in the 2012 Trustees Reports come as no surprise to anyone who understands how Social Security and Medicare work," Max Richtman, president of the National Committee to Preserve Social Security and Medicare, said in a statement. "The trust fund solvency date for Social Security has seen fluctuations many times in recent decades, from a depletion date as distant as 2048 in the 1988 report to as soon as 2029 in the 1994 and 1997 reports. This year's report is well within that range. Contrary to the crisis myths perpetuated by fiscal conservatives and many in the media, the prevailing facts show once again that Social Security remains among the nation's most successful and stable programs. The Trustees report there is now $2.7 trillion in the Social Security trust fund, which is $69 billion more than last year, and continues to grow. Payroll contributions and interest will fully cover benefits for decades to come."
"Contrary to the crisis myths perpetuated by fiscal conservatives and many in the media, the prevailing facts show once again that Social Security remains among the nation's most successful and stable programs." -Max Richtman, NCPSSM
Dean Baker, co-director of the Center for Economic and Policy Research, writes today, "The main reason that the program's finances have deteriorated relative to the projected path is that wage growth has not kept pace with the path projected. This is in part due to the fact that productivity growth slowed in the 80s, before accelerating again in the mid-90s and in part due to the fact that much more wage income now goes to people earning above the taxable cap. In 1983 only 10 percent of wage income fell above the cap and escaped taxation. Now more than 18 percent of wage income is above the cap."
And Trudy Lieberman of the Columbia Journalism Review, writing recently on the continued failure to present -- much less advocate for -- the payroll tax cap solution, lamented, "that option is not on Washington’s table, nor has it been discussed much in the press. Why not? Because it doesn’t fit into the doom-and-gloom narrative that has proved politically expedient to tell."
* * *
Senator Bernie Sanders: Social Security Is StrongSenator Bernie Sanders is one of the program's staunchest advocates in Washington. (File)Sen. Bernie Sanders (I-Vt.) has introduced legislation to strengthen Social Security and guarantee benefits for 75 years by extending the payroll tax that most Americans already pay to those who earn above $250,000 a year.
Social Security provides support for 55 million people, including 38 million retired workers, 6 million widows, widowers and orphans, and 11 million disabled workers. The most successful government program in our nation's history has not contributed one dime to the federal deficit.
“The most effective way to strengthen Social Security for the next 75 years is to eliminate the cap on the payroll tax on income above $250,000. Right now, someone who earns $110,100 pays the same amount of money into Social Security as a billionaire. That makes no sense,” said Sanders., the chairman of the Defending Social Security Caucus. He also chairs the Senate aging subcommittee.
Under the proposed legislation, the wealthiest Americans would pay the same payroll tax rate already assessed on those with incomes up to $110,100 a year. Social Security officials have calculated that the simple change would keep the retirement program strong for another 75 years. The legislation also follows through on a proposal that President Barack Obama made in 2008 when he was running for president.
The Keeping Our Social Security Promises Act is cosponsored by Sens. Daniel Akaka (D-Hawaii), Richard Blumenthal (D-Conn.), Barbara Boxer (D-Calif.), Al Franken (D-Minn.), Amy Klobuchar (D-Minn.), Patrick Leahy (D-Vt.), Claire McCaskill (D-Mo.), Barbara Mikulski, (D-Md.), Harry Reid (D-Nev.) and Sheldon Whitehouse (D- R.I.).
Since it was signed into law 76 years ago, Social Security has kept millions of senior citizens, widows, widowers, orphans, and the disabled out of poverty. Before Social Security, about half of senior citizens lived in poverty. Today, less than 10 percent do.
“I strongly disagree with some of my colleagues who want to balance the budget by cutting Social Security, Medicare, Medicaid and other programs that are of enormous importance to seniors and the working families of our country. There are ways to address the deficit crisis without attacking some of the most vulnerable members of our society. As chairman of the Defending Social Security Caucus, I will do everything in my power to make sure that the promises made to seniors will be kept.”
Social Security provides support for 55 million people, including 38 million retired workers, 6 million widows, widowers and orphans, and 11 million disabled workers. The most successful government program in our nation's history has not contributed one dime to the federal deficit.
* * *
Center on Budget and Policy Priorities: Cost of Tax Cuts Is Twice as Big as Social Security ShortfallThe revenue loss over the next 75 years from making those tax cuts permanent would be about two times the entire Social Security shortfall over that period.
The budgetary pressures that the nation will face in the decades ahead also underscore the high stakes of the tax decisions that policymakers will face later this year. The tax cuts enacted under President Bush — and extended for two years at the end of 2010 — will expire at the end of this year. Experts including Alan Greenspan (former chair of the Federal Reserve Board) and Peter Orszag (former head of the Congressional Budget Office and the Office of Management and Budget) have argued against making the tax cuts permanent. The revenue loss over the next 75 years from making those tax cuts permanent would be about two times the entire Social Security shortfall over that period. Indeed, the revenue loss just from extending the tax cuts for people making over $250,000 — the top 2 percent of Americans — would itself be nearly as large as the entire Social Security shortfall over the 75-year period. Members of Congress cannot simultaneously claim that the tax cuts are affordable while the Social Security shortfall constitutes a dire fiscal threat.
Although Social Security faces no imminent crisis, policymakers should act sooner rather than later to restore its long-term solvency. The sooner policymakers act, the more fairly they can spread out the needed adjustments in revenue and benefit formulas, and the more confidently people can plan their work, savings, and retirement.In this Aug. 14, 1935, file photo President Franklin Roosevelt signs the Social Security Bill in Washington. In 1935 Americans struggle to pay for medical care amid the Great Depression. Roosevelt favors creating national health insurance, but decides to push for Social Security first. He never gets the health program passed. But his Social Security bill will provide old age pensions and unemployment insurance. From left are: Chairman Doughton of the House Ways and Means Committee; Sen. Wagner, D-N.Y, co-author of the bill, Secretary Perkins, Chairman Harrison of the Senate Finance Committee, Rep. Lewis, D-Md., co-author of the measure. (AP Photo/File)
Acting sooner also helps the budget as a whole by modestly reducing federal borrowing in coming years. That will help stabilize the ratio of debt to GDP — a key test of fiscal sustainability — and limit the overall interest costs that we must pay.
Nevertheless, policymakers need to get Social Security reform right. Nearly every American participates in Social Security, first as a worker and eventually as a beneficiary. The program’s benefits — though modest both in dollar terms (elderly beneficiaries receive an average Social Security benefit of less than $15,000 a year) and compared with benefits in other countries (Social Security benefits replace a smaller share of pre-retirement earnings than comparable programs in most other developed nations) — are the foundation of income security in old age. In fact, the median income of elderly married couples from all sources other than Social Security equaled just $23,000 in 2010; for non-married elderly people (including widows and widowers), median income from other sources equaled only $3,000. And millions of beneficiaries have no income other than Social Security.
As a result, Social Security changes need to be designed with great care. Treating Social Security as just one component of a big deficit-reduction package can lead policymakers to reach for “off-the-shelf” options without sufficiently considering the program’s adequacy, equity, and relationship to other programs such as Medicare and SSI, or the interactions of the options they are selecting. (For example, the Bowles-Simpson Social Security plan intended to shield low-income beneficiaries but was hastily designed and failed to meet that goal.) Policymakers need to design reforms judiciously so that Social Security continues to be the most effective and successful income-security program in the nation’s history.
* * *
Center for Economic and Policy Research: The Primary Cause of Social Security's Bleak Outlook Is Upward RedistributionIn an article on the release of the 2012 Social Security trustees report the Washington Post told readers that:
"Social Security’s bleak outlook is primarily driven by the ever-larger numbers of people in the baby boom generation entering retirement."Actually the fact that baby boomers would enter retirement is not news. Back in 1983, the Greenspan Commission knew that the baby boomers would retire, yet they still projected that the program would be able to pay all promised benefits into the 2050s.
The main reason that the program's finances have deteriorated relative to the projected path is that wage growth has not kept pace with the path projected. This is in part due to the fact that productivity growth slowed in the 80s, before accelerating again in the mid-90s and in part due to the fact that much more wage income now goes to people earning above the taxable cap.
In 1983 only 10 percent of wage income fell above the cap and escaped taxation. Now more than 18 percent of wage income is above the cap.
* * *
Trudy Lieberman at the Columbia Journalism Review: How the Media Has Shaped the Social Security DebateFor nearly three years CJR has observed that much of the press has reported only one side of this story using “facts” that are misleading or flat-out wrong while ignoring others. Whatever the reason—ideology, poor understanding of how the program works, gullibility, or plain old reportorial laziness—news outlets have given the public a skewed picture of the financial health of this hugely important program, which is the sole source of retirement funds for millions of Americans and will continue to be for decades to come.
Social Security is the one issue on which the electorate is not divided. Gallup polls dating back six decades consistently show some 70 percent of the public strongly supports Social Security. Most Washington opinion makers think otherwise, though. Indeed, listening to the politicians and policy gurus, one would conclude that this most basic of retirement programs for nearly all Americans is in grave danger, and America itself is in grave danger because of it.
For nearly three years CJR has observed that much of the press has reported only one side of this story using “facts” that are misleading or flat-out wrong while ignoring others. Whatever the reason—ideology, poor understanding of how the program works, gullibility, or plain old reportorial laziness—news outlets have given the public a skewed picture of the financial health of this hugely important program, which is the sole source of retirement funds for millions of Americans and will continue to be for decades to come.
To be sure, Social Security is not in perfect financial health. But the fact is, the program can pay full benefits until 2036, and three-quarters of the benefits after that without new revenues. Many experts believe small fixes like lifting the cap on income subject to payroll taxes—$110,100 for 2012—will make Social Security solvent for decades. But that option is not on Washington’s table, nor has it been discussed much in the press. Why not? Because it doesn’t fit into the doom-and-gloom narrative that has proved politically expedient to tell?
The one-sided reporting on this issue has influenced the way millions of Americans, especially younger ones, now think about Social Security. A twenty-nine-year old web manager for a New York City agency recently told me she was opting out of the program, which the city pension system allows her to do. “I don’t think Social Security is a wise investment given the (availability) of a deferred compensation plan,” she said. “It’s a known fact,” the woman explained, “if it stays the way it is right now, it would run out of funds in 2035.” How did she know that? She listed the media outlets that helped shape her opinion. The elites were there like The Wall Street Journal, CNN, The New York Times, and Bloomberg News, but so were relative newcomers like Investopedia and other media products. The message from the elite media is trickling down.
“The elite press repeatedly quotes the commentary of the devoted opponents of social insurance retirement programs,” says Yale professor emeritus Theodore Marmor. “But they appear unaware of how they are supporting a strategic attack on social insurance that has been going on for years.”
* * *
Strengthen Social Security: Facts Related to the 2012 Trustees ReportSocial Security is projected to pay all benefits in full and on time until 2033.
Social Security is prohibited by law from contributing to the federal deficit.
- Social Security’s trust fund will continue to grow through 2020, when it will reach $3.06 trillion.
- With no action whatsoever, Social Security will have sufficient income and assets to pay all monthly benefits in full and on time until 2033.
Social Security can pay all benefits in full and on time after 2033 with a relatively modest increase in dedicated revenues.
- By law, Social Security cannot borrow.
- Social Security is prohibited from paying benefits if it has insufficient income and assets to cover the cost.
- Cutting Social Security will not subtract a single penny from the federal debt subject to the limit that some are threatening to hold hostage.
The fact that 2012 benefit payments are projected to exceed one part of Social Security’s dedicated revenue, from payroll taxes, ignores the fact that 2012 benefit payouts are less than all of Social Security’s income combined. Social Security’s actuaries project that in 2012 Social Security will enjoy a $57.3 billion SURPLUS!
- The 2012 Trustees Report projects that Social Security would be in complete actuarial balance for the full 75 year valuation period, if revenues were increased by the equivalent increasing the deductions from workers’ wages by roughly 1.1 percent, matched by employers.
- Social Security could be restored to balance more progressively, such as with a tax on sales and purchases of stock, a tax on the assets of very large estates, or by eliminating or “scrapping” the payroll tax cap.
- By increasing the revenue by a small amount more than is needed to pay scheduled benefits, those benefits could be increased either in a targeted way or across the board.
- Social Security has three revenue sources: (1) mandatory contributions, deducted from the wages of workers, and matched by employers (commonly referred to as “payroll taxes”); (2) interest earned on revenue not needed to pay benefits and expenses in prior years, and so invested in certificates of obligation and bonds issued by the U.S. Treasury; and (3) income taxes on the Social Security benefits of those with higher incomes.
- These three sources of revenue, taken together, exceed the cost of all benefits and associated administrative costs in 2012 by a projected $57.3 billion, according to the 2011 Trustees Report.
- There is nothing new or surprising about Social Security’s benefits exceeding the so-called payroll taxes in 2012. Benefits exceeded payroll tax contributions in 1958, 1959, 1960, 1961, 1962, 1963, 1965, 1971, 1972, 1973, 1974, 1975, 1976, 1977, 1978, 1979, 1980, 1981, 1982, 1983, 1984, 2010, 2011, and 2012. The sky did not fall. Indeed, the trust funds acted as intended, providing a margin of safety so that benefits could be fully paid, even in very difficult economic times.
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