In the coming days and weeks we’ll be hearing a lot of misinformation about the Trustees Report from the Social Security Administration. It’s time to separate the myths from the realities:
Myth: “Social Security and Medicare have a cost problem.”
Fact: Medicare has a financial problem. As this chart shows, the cost of providing Social Security benefits is not out of control or skyrocketing.
Social Security is on an even keel for the foreseeable future. Twenty years from now it’s projected to be in a position to pay only 75 percent of benefits – but that’s easily fixed by lifting the payroll tax cap.
Myth: “Aging workforce strains Social Security, Medicare”
Fact: That’s a headline we saw repeated across the country in anticipation of the Trustees Report, but it’s wrong. What’s “straining” Social Security and Medicare today is the unequal distribution of income and a broken regulatory system for Wall Street that has put the entire economy under stress.
Social Security was actuarially stable after it was overhauled by the Greenspan Commission in the 1980s. The Baby Boomers were all alive and (mostly) working by then. So what really happened?
First, a radical upward shift in income toward the “1 percent” – and the “0.0001 percent” – meant that more and more of the nation’s income was above the payroll tax cap threshold. That reduced the revenue for Social Security (and much of Medicare) from a projected 90 percent of national income to a figure that’s closer to 83 percent.
Secondly, a financial crisis brought on by reckless and under-regulated Wall Street banks crashed the economy in 2008. For millions of Americans it has never come back. Joblessness, along with wage stagnation for the “99 percent,” further depleted the programs’ revenues.
Myth: We need to place limits on Medicare spending and cut its benefits.
Fact: That’s like saying the way to end forest fires is by firing Smokey the Bear. Benefit cuts and spending caps won’t solve our health cost problem. There has been an explosion of for-profit hospital chains in the last twenty years, along with profit-driven laboratories, imaging centers, and other types of health providers.
In addition, our system of reimbursing physicians provides an incentive for them to treat more and charge more for their services. That’s costly – and it subjects patients to a lot of unnecessary tests. On top of that, the lion’s share of our health economy is “managed” by for-profit insurance companies who have little motivation or skill when it comes to prudent fiscal management.
If we expand Medicare to our entire population we’d have a health system like that of all other industrialized countries – whose health costs are roughly 60 percent of our own and grow more slowly than our own. Medicare’s cost problem would be solved.
By contrast, the solutions being floated in Washington wouldn’t fix the problem – they’d just dump it onto the backs of seniors and the disabled.
Myth: We can’t get our Federal deficits under control without cutting Social Security benefits – either by raising the eligibility age, placing gimmicky limits on cost-of-living adjustments, or all of the above.
Fact: Social Security is forbidden by law from contributing to the Federal deficit. It’s an entirely self-sustaining program. If the day comes when it can’t pay its full scheduled benefits, those benefits must and will be cut. This is a phony argument.
Myth: Too many millionaires are collecting Social Security and Medicare, so we should means-test and deny them these benefits.
Fact: The number of actual “millionaires” on Social Security and Medicare is tiny, by any objective measure. It wouldn’t have any significant impact on their budgets to exclude them – although it would help a lot to tax them.
What’s more, Medicare and Social Security are social insurance programs. By definition, insurance shouldn’t be means-testing like welfare and other aid programs, because you’ve already paid your premiums. The “means-testing” argument is often used to mischacterize these programs as “welfare,” instead of what they really are: Something people have paid into through the payroll tax throughout their working lives, and (in Medicare’s case) which they’ve also supported through their taxes.
Myth: Social Security benefits are too generous. They need to be cut because we can’t afford them.
Fact: Our Social Security benefits are lower than those of nations that are economically similar to the US. As we said, the current reductions in revenue were caused by 1) an upward distribution of wealth to the “1 percent” and 2) a financial crisis brought about by Wall Street greed and speculation.
That suggests two possible solutions to Social Security’s twenty-year-from-now problem: 1) Lift the payroll tax cap, and/or 2) impose a small financial transactions tax on Wall Street and use it to make up the Social Security shortfall. Either of these approaches would solve the problem.