Social Security Works Better By Maintaining Benefits
By Todd Pinkus
June 29, 2010 - 11:20am ET
Popular This Week
Also Worth Reading
This special commission edition is the eighth and final installment in our Social Security Works series. So far, we have seen how Social Security works for America, how Social Security works for women, how Social Security works for people of color, how Social Security works for people with disabilities, how Social Security works for veterans, how Social Security works for children, how Social Security works for families, and today in the series finale we will show how Social Security works better by maintaining benefits.
On June 30 the National Commission on Fiscal Responsibility and Reform (the deficit reduction task force) holds the third meeting, this one nominally open to public feedback. While the full meetings have been opened to livestreaming, the workings group meetings have been held behind closed doors.
In the transparency balance, allowing token public comments at the third meeting hardly redresses the secrecy of the closed door working groups. The format will allow 90 participants to speak for four minutes a piece. Assessing the minimal level of attempts to involve members of the public outside the Beltway, the commissions’ abysmal efforts at sparking interest from Americans at large begs the question of how well the commission has reached out to the public.
One of us (Alex) livestreamed an exchange with commission co-chair Alan Simpson following a closed door session for the mandatory spending group. Since the exchange, the clip with Simpson claiming the intention to take care of ‘the lesser people in society’ and repeating factually incorrect talking points, has made the rounds on the blogosphere, prompted Moveon.org to call for the Simpson’s resignation, which in turn lead to a question with White House Press Secretary Robert Gibbs.
The commission’s paternalism strikes a sour cord to unsympathetic ears for the repeated refrain that they plan to cut spending for the sake of their children and grandchildren. Rep. Schakowsky, reminiscent of the analysis of Henry Aaron, has voiced the criticism that the social policy balance need not pit children against seniors.
• Besides, Social Security provides children, although perhaps not the children or grandchildren of the elite members sitting on the commission, more benefits than any other social program, that is more benefits than Temporary Assistance for Needy Families (TANF), the nation’s primary cash welfare program, and Supplemental Security Income (SSI) combined.
• Over 6.5 million children under age 18, or nearly 9 percent of all US children, benefit from Social Security, as dependents of workers who have died or become disabled, or as family members in households where an adult relies on Social Security.
Social Security also does more to reduce poverty and reduce the severity of poverty among children than any other government program. By lifting 1.3 million children out of poverty, Social Security income reduces the poverty rate among children by about 20 percent.
Grouping Social Security in with spending programs under consideration by the deficit commission conflates the issue since the basic facts about the program’s financing remain constant: Social Security does not contribute to the budget deficit.
• There is no general entitlement crisis because there is no Social Security crisis.
In fact, Social Security has run annual surpluses since 1983.
• There retirement of the baby boomers has been anticipated. In building up the surplus during their working years the boomers have funded the reserve, which is held in trust for the beneficial owners, the beneficiaries and their families.
Contributions have dropped temporarily during the recession as high unemployment reduced the size of the labor force. In a contracted economy with less jobs and a smaller workforce to pay in the dedicated federal income contribution, split between employers and employees, Social Security revenues have dipped by a corresponding level.
The scenario when revenues are first eclipsed by benefit payments has already been addressed by the design of the reserve fund which buttresses the contributions of employers and employees by earning interest on the surplus holdings.
• Retiring baby boomers, which started this year, have also been long anticipated by the Social Security system. By fully factoring demographic changes into the tax schedule, the 1983 Social Security Amendments accounted for the decline in the ratio of workers to retirees accompanying the retirement of the baby boom.
By design the surplus has been funded by the baby boomers in their peak earning years and other workers to help finance the baby boomers’ retirement.
Running in the green for over 2.5 decades, the program built up a surplus of over $2.5 Trillion in 2009, and which over those years were loaned to the federal government.
• This surplus has been converted into Treasury Bonds and is held in trust. These bonds owned by Social Security are no different than the trillions in bonds owned by the federal government’s other creditors, such as China.
• In every year since 1983, save 4, the surplus has been used to lower the level of the budget deficit, and in those other 4 years, from 1998-2001, the surplus allowed the government to run a balanced budget.
If there is only a moderate long-term shortfall of revenues and interest on holdings, then why the rush to benefit cuts as the means of returning to 75-year actuarial balance?
In any case, benefit cuts, such as raising the normal retirement age, which is tantamount to an across the board benefit cut, comes on the heels of the earlier benefits cuts, which has only now increased Social Security’s statutorily-defined “Retirement Age” from 65 to 66 for retirees born after 1943 and is now in the process of raising the normal retirement age to 67 for everyone born after 1959.
• The increase in the Social Security normal retirement age from age 65 to age 67 is about a 13 percent cut in benefits for all workers born on or after 1960, irrespective of the age benefits are claimed.
• Before the current increase in the normal retirement age, workers retiring at age 62 received 80 percent of the retirement benefit received if retiring at age 65.
• With the increase to age 66, early retirement benefits are now 75 percent of full benefits.
• After the normal retirement age increase another year, early benefits will be reduced to 70 percent of the full benefit level.
Additional increases in the normal retirement age would constitute a regressive benefit cut since the burden falls heaviest on blue-collar, manual labor workers who often cannot work to later ages without significant sacrifices to health. The overall burden hits hardest when considering workers in physically demanding occupations who cannot afford to retire with additional cuts to early retirement benefits but also cannot physically work longer.
• Raising the retirement age to 69, for instance, would further reduce the early benefit to 65 percent of the full benefit level.
• In addition, increasing the normal retirement age to 69 would constitute another 13 percent cut in benefits, for a total of around 25 percent, irrespective of the age benefits are claimed.
• Since poor and lower-income beneficiaries depend on Social Security for a greater share of their income, the impact of these regressive cuts would be felt most acutely by the beneficiaries in lower-income brackets.
If the retirement age is raised by a fixed amount, such two years, the length of receipt of full benefits will be shortened. However, the length of time during which workers can expect full benefits varies depending on their life expectancy.
A retirement period that is shortened by two year will have a disproportionately larger effect on workers who have below average life expectancies than for those who have above average life expectancies.
• Blue collar men and women, for example, have much shorter estimated life expectancies - 1.7 years and for 1.1 years for women - than white collar men and women.
• The differences are even larger by income. Low-income men have an estimated life expectancy that is 3.3 years shorter than that of high income men, and low income women have a life expectancy that is 1.3 years shorter than that of high income women.
In sum, an increase in the normal retirement age constitutes a benefit cut for all retiree beneficiaries of Social Security. Those workers wanting to retire with full benefits will have to wait longer to do so and thus will receive benefits for a shorter period of time. Workers needing to retire before the normal retirement age will incur additional reductions to their benefits' adequacy. These reduction of benefits will be permanent.
As reform options for Social Security are discussed, it is crucial that the main social insurance function of Social Security – to protect those who no longer can work – is adequately addressed.
Help us spread the word about these important stories...
Email to a friend
Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future