Guest Column: Social Security: What you should know about the Trustees’ Report
Editor’s note: The following is in response to the July 4-10 guest column “How to save Social Security 101,” by David Soll, a Democratic candidate for Winnebago County Board in District 20.
By Brenton Smith
Fix Social Security Now
Your edition gave David Soll an opportunity to discuss how to fix Social Security. He described Social Security as pre-paid insurance. According to the Trustees of the system, Social Security is not pre-paid. In fact, it is a pay-as-you-go system that is $20.5 trillion short of what it needs to meet its promises (page 15 of the Trustees’ Report). To describe that as pre-paid insurance stretches the imagination.
Soll’s portrayal of Paul Ryan’s plan is completely uninformed. It didn’t end Social Security. Technically, it expanded Social Security with new benefits that don’t exist today. It would have created guarantees that today’s seniors do not have.
Soll’s proposals are difficult to measure because he provides no independent research. But it is possible to say he has the wrong figures for the taxable wage base (the cap) and the wrong payroll tax rates. It is also possible to question his summary. Today, the system is short $20.5 trillion. His solution is to have fewer workers paying into the system and more taking out of the system. That doesn’t sound like a fix.
I work with Fix Social Security Now. I hope you would use your outlet as a venue for sensible discussions of the problems in Social Security. Today, someone as old as 63 can expect to be affected by forced benefit reductions. Do you think that “Then, double the current amounts given to each retiree up and down the entire scale, another economic boon,” really gives the subject the deliberation it deserves? Millions of people depend upon this system.
This is a piece that tells people the five things they should understand about the 2012 Social Security Trustees’ Report.
Five things you should know about The Trustees’ Report
In April, the Social Security Board of Trustees released a dismal report Michael J. Astrue, commissioner of Social Security, described as troubling. The media compressed the report into a headline: “Social Security shortens timeline for trust fund by 3 years.” The public further shortened the hundreds of pages of the report into four digits: 2033.
Many younger Americans dismiss the report because they believe the Social Security system will not be there for them. It is a mistake to ignore the deterioration of the system because the consequences of a crisis in Social Security will be there for all Americans. This is what the report means to you.
First, the financial picture worsened over the past year. The unfunded liability grew by more than 14 percent to $20.5 trillion in 2012 dollars. That figure is more than Social Security has collected in all forms of revenue from all Americans since its inception.
Second, the demographics of Social Security also deteriorated. With the latest report, the Trustees have projected that anyone who is 46 or younger will retire after the Trust Fund is gone. Anyone who is 63 can expect to live long enough to lose benefits. Based on 2010 data from the U.S. Census, that means that only 22 percent of voting-aged Americans can expect to be unaffected by the deteriorating financial picture in Social Security.
Third, the government expanded the public subsidies of the system in 2011. The federal government has subsidized the Social Security system with dollar-for-dollar deficit spending since the mid-1970s when it introduced the Earned Income Tax Credit. The level of subsidy was expanded in 2011 to include $103 billion in payroll tax-holiday funding. This change expands the revenue reach of the system from the capped wages of covered workers to all future income streams of all Americans. This is really bad news for younger Americans. The system may not be there for them, but the debt created by the subsidies will be.
Fourth, the system no longer generates enough to cover scheduled benefits. In 2012, Social Security used interest from the Trust Fund to cover the shortfall. This process has long-term consequences for the federal government, which has enjoyed the benefit of the excess cash flow to finance the debt. These long-term consequences are very bad news for younger Americans, who will have to support the increased cost of the nation’s debt as the government moves financing from trapped capital to the public markets.
Fifth, many pundits will make misleading statements about what the Trustees have said by suggesting that Social Security will take in enough revenue to keep all of its promises for the next 30 years, without any changes at all. The Trustees’ projections are based on a good economy. The pundits leave off the conditional clause, “if the assumptions are right.”
Some of these assumptions are pure fantasy. The Trustees, for example, silo the system from known external events like the collapse of Medicare. The Trustees present these two programs as separate entities. While they may be separate legal entities, they draw financial resources from the same tax base just like two straws drinking from one soda. What one takes the other cannot. If Medicare reaches insolvency in 2024, as the Trustees have separately said, Congress will have the following three choices:
1. Divert some of the payroll taxes away from Old-Age Insurance to Medicare;
2. Divert general taxes away from debt control; or
3. Redefine Medicare benefits.
Younger Americans should pay very close attention to another assumption built into the 2033 equation. Once the Trust Fund is exhausted, benefits will be cut by a projected 25 percent. While younger Americans may not be directly affected by the forced benefit reductions, they will be indirectly affected as their parents’ benefits are cut. So, the Trustees are assuming that future workers will contribute as much in payroll taxes as today, despite increased parental support and increased costs to manage the debt. This assumption is no more realistic than projecting that leprechauns will spit out gold coins to pay for the system.
Many younger Americans ignore Social Security because they think they will get nothing. They are wrong. The one thing that I can assure everyone is that they will get something. It may make you wish for nothing — but all Americans will get something from a collapse of Social Security.
Fix Social Security Now is a non-partisan group of citizens seeking to promote a discussion about the state of Social Security. The group does not support a specific plan, although it is against raising taxes and lowering benefits. Visit www.fixssnow.org for more information.
From the July 11-17, 2012, issue
Print This Article