Social Security is under political siege, thanks to a disinformation campaign by conservative opponents and a few widely held misunderstandings about how the program works and its impact on the federal deficit. Here are some basic facts you need to know about Social Security and what it will take to strengthen the program for future generations.
The Social Security system isn’t “going broke.”
Social Security is currently running a surplus. It is true that after 2015, based on current tax policies and assumptions about economic growth, Social Security’s trustees in their 2010 report say the program faces a modest long-term financing shortfall of tax revenue and interest on Trust Fund assets. That’s when the Old Age, Survivors, and Disability Insurance program will start to take in less tax revenue than it pays out in benefits. But even after 2016, the trust funds will continue to grow because of interest on its assets through 2023. Social Security will gradually draw down all its reserves before the end of 2037 if Congress takes no action whatsoever. At that point Social Security will have sufficient resources to pay about three-quarters of scheduled benefits. Still, that’s hardly “going broke.”
Social Security isn’t worsening the deficit.
Social Security has not contributed one dime to the federal deficit. In fact, Social Security has a $2.6 trillion surplus today that is projected to increase to $4.2 trillion in 2025. Social Security is funded by a dedicated tax, and it has built up assets over the years to cover the benefits it pays, just as any other insurance program does. The immediate causes of the nation’s recent large deficits have been President Bush’s tax cuts in 2001 and 2003, the 2008-2009 economic downturn and the costs of the Iraq and Afghanistan wars. The real long‐term deficit challenge comes almost entirely from health-care costs. Medicare and Medicaid costs are projected to grow from about a bit more than 5 percent of the nation’s gross domestic product today to 17.2 percent in 2081, according to the Congressional Budget Office. Social Security costs are projected by actuaries to grow only from about 4.8 percent of GDP today to just over 6 percent by 2035, and then decline to 5.9 percent of GDP in 2050 and beyond.
Current demographic trends aren’t a surprise.
Former Sen. Alan Simpson, the Republican co-chairman of the White House deficit commission and a leading proponent of reducing Social Security benefits, once said that the creators of Social Security in the 1930s “never dreamed that the life expectancy [would increase] from 57 years of age to 78 or 75 or whatever.” That’s incorrect. Social Security’s actuaries as far back as the late 1930s accurately predicted within 0.3 percentage points the percentage of the American population today that would be over 65. In the 1930s, infant and child mortality rates were much higher than today, and that obviously lowered average life expectancy. But at the time the first Social Security checks were being mailed out in the late 1930s, life expectancies for those who made it to age 65 were 77.7 years for men and 79.7 years for women. Today’s demographic trends are not a surprise and don’t need to be viewed as a symptom of a crisis.
You don’t need to cut Social Security benefits or raise the retirement age to secure its future.
You could instead make modest changes to increase revenues into the system. Currently, only earned income below about $107,000 is subject to Social Security taxes. Lifting that cap would solve Social Security’s long-term solvency problem. Or you could at least set the cap so that it covers 90 percent of the earned income of all workers, as Congress originally intended; because high-end salaries have exploded while low-end salaries have stagnated, the current cap covers only 83 percent of earned income. A report by the National Academy of Social Insurance in 2009 offered several other approaches to maintaining Social Security’s solvency that Congress can consider. Also, by diversifying the trust fund portfolio as private pensions do, you could provide a higher rate of return while maintaining the security of the assets. Gradually investing the assets in broad-based stock funds over two decades, up to a maximum of 20 percent of plan assets, eliminates about a quarter of the projected shortfall.
In fact, if anything, Social Security benefits need to be strengthened.
The average Social Security benefit—$1,155 per month, or about $13,860 per year for a retired worker in 2009—is only slightly higher than the U.S. poverty thresholds. And it’s less than what a retired person actually needs to meet all of their basic needs when you take into the account the rising cost of medical care and housing. The average retiree still paying a mortgage on their home would need almost twice what they’re receiving in Social Security in order to make ends meet, according to one recent report.
A popular argument is that since people are living longer, we should raise the retirement age. Under current law, the age at which people are eligible for full Social Security benefits is set to increase to age 67 for people born in 1960 or later. That means Social Security’s full retirement age is already much older than eligibility ages in private (or public) pension plans, which remain 65 or earlier. Moreover, it is older than the ages for penalty-free withdrawals from 401(k)s or IRAs (59½). Also, consider that, according to a Center for Economic and Policy research study, 45 percent of workers 58 and older work in jobs that are physically demanding or have difficult working conditions; it is neither fair nor humane to ask these workers to put their health and perhaps their lives at additional risk. Finally, at a time when some economists argue that the country is going into a long-term period of historically high unemployment, it makes no sense to force older workers to stay in the workforce longer than they want.
The public supports strengthening Social Security.
Broad majorities of the public oppose cutting Social Security benefits in order to reduce the deficit (81 percent in a fall 2010 Social Security Works poll by Lake Research) and raising the retirement age (66 percent in a 2010 Campaign for America’s Future poll by Democracy Corps). These polls and others show that almost two-thirds of the public would instead support lifting the payroll tax cap on incomes higher than $106,000. Majorities would also support other revenue-raising measures affecting the wealthiest Americans.
- MoveOn.org: “Top Five Social Security Myths”
- Strengthen Social Security website
- OurFuture.org Strengthen Social Security blog page (2008).
Updated January 7, 2011.