Sen. Bernie Sanders (D-Vt.) has called out his Senate Republican colleagues for “creating a phony crisis” with regard to Social Security while ignoring a real one – the income inequality that has eroded the long-term solvency of the Social Security trust fund.
Sanders joined a conference call with Social Security Works on Thursday to highlight the conclusions of a report on the impact of income inequality on the Social Security program. It was authored by Ben Veghte, policy director at Social Security Works.
“The peerless rise in income inequality has harmed Social Security financing,” said Nancy Altman, co-Director of Social Security Works. “When the amendments to Social Security were enacted in 1983, Social Security was projected to be able to pay benefits through 2057. Now benefits are being projected to be paid in full only until 2033. What happened? No one foresaw back then was the upward distribution of wealth that we have seen then.“
She said that while enemies of Social Security have tried to pit groups against one another in an attempt at misdirection, “Today with this report, we will return our gaze to where it belongs, on our income and wealth inequality.”
The report points out that payroll taxes for Social Security are today levied only on the first $118,000 of earned income, a level that is indexed to the rate of inflation. When the payroll tax cap was last set in 1983, the payroll tax applied to 90 percent of total earned income. Today, the tax only covers 83 percent of earned income – a consequence of all of the income gains of recent decades going to the top 10 percent of earners.
“While we may want to look at the huge transfer of income and wealth from the middle class to the top 1 percent, or top tenth of 1 percent, as a moral issue, in fact it is also a huge economic issue, and it also impacts Social Security to a very significant degree,” Sanders said. “The reason for that is that if working people are earning less than they used to, then they are contributing less to the Social Security trust fund than they otherwise would have. If the wealthy are becoming wealthier, then it means that we have more and more people above the cap, which is today at $118,000.”
The senator proposed at least raising the percentage of income subject to the payroll tax, if not eliminating it altogether.
“You can start at $250,000,” Sanders said, “and what the Social Security Administration has told us, their actuary has told us, is that if you do that, you’re going to make Social Security solvent for the next 40 years on top of the 18 years it’s solvent. “
The “phony crisis” that Sanders referred to is the attempt by congressional Republicans to block a temporary transfer of funds from the old age and survivor’s portion of Social Security into the disability benefits portion of the fund. Without such a transfer, people receiving disability payments would see an estimated 19 percent cut in their benefits starting late next year.
Such a cut “is literally beyond comprehension,” Sanders said. “Many of the people who receive disability today are living in poverty, and their disabilities make life difficult enough as it is.” The price Republicans want to extract for avoiding those cuts, Sanders said, is to “cut the Social Security program in general. Maybe we’ll raise the retirement age, maybe we’ll come up with chained CPI or other cuts to Social Security.”
Sanders has endorsed President Obama’s call for Congress to make the fund transfer for the disability program, similar to what Congress has done 11 times in the past to shore up shortfalls in either fund with minimal controversy. Then Congress can move to implement the other recommendations in the Social Security Works report. That does not only mean such reforms as eliminating the Social Security tax cap completely, so that wealthy Americans pay the same share of their earned income in payroll taxes as low-wage and middle-income workers. It also means stimulating wage growth by investing in infrastructure projects and education, increasing the minimum wage, and allowing more access for employees at the bargaining table. Implementing these suggestions would increase wages for average workers and improve finances for the Social Security Trust Fund.