Why Social Security
Isn't a Problem for 26 Years, and the Best Way to Fix It Permanently
Social Security
isn't responsible for federal deficit - just the opposite. Until last
year it took in more than it paid out. It lent
the surpluses to the government
By Robert Reich,
former Secretary of Labor
Feb.
26, 2011 -
New Jersey Governor Chris Christie, a Republican presidential hopeful,
says in order to "save" Social Security the retirement age should be
raised. The media are congratulating him for his putative "courage."
Deficit hawks are proclaiming Social Security one of the big
entitlements that has to be cut in order to reduce the budget deficit.
This is all
baloney.
In a former life
I was a trustee of the Social Security trust fund. So let me set the
record straight.
Social Security
isn't responsible for the federal deficit. Just the opposite. Until last
year Social Security took in more payroll taxes than it paid out in
benefits. It lent the surpluses to the rest of the government.
Now that Social
Security has started to pay out more than it takes in, Social Security
can simply collect what the rest of the government owes it. This will
keep it fully solvent for the next 26 years.
But why should
there even be a problem 26 years from now? Back in 1983, Alan
Greenspan's Social Security commission was supposed to have fixed the
system for good by gradually increasing payroll taxes and raising the
retirement age. (Early boomers like me can start collecting full
benefits at age 66; late boomers born after 1960 will have to wait until
they're 67.)
Greenspan's
commission must have failed to predict something. But what? It fairly
accurately predicted how quickly the boomers would age. It had a pretty
good idea of how fast the US economy would grow. While it underestimated
how many immigrants would be coming into the United States, that's no
problem. To the contrary, most new immigrants are young and their
payroll-tax contributions will far exceed what they draw from Social
Security for decades.
So what did
Greenspan's commission fail to see coming?
Inequality.
Remember, the
Social Security payroll tax applies only to earnings up to a certain
ceiling. (That ceiling is now $106,800.) The ceiling rises every year
according to a formula roughly matching inflation.
Back in 1983,
the ceiling was set so the Social Security payroll tax would hit 90
percent of all wages covered by Social Security. That 90 percent figure
was built into the Greenspan Commission's fixes. The Commission assumed
that, as the ceiling rose with inflation, the Social Security payroll
tax would continue to hit 90 percent of total income.
Today, though,
the Social Security payroll tax hits only about 84 percent of total
income.
It went from 90
percent to 84 percent because a larger and larger portion of total
income has gone to the top. In 1983, the richest 1 percent of Americans
got 11.6 percent of total income. Today the top 1 percent takes in more
than 20 percent.
If we want to go
back to 90 percent, the ceiling on income subject to the Social Security
tax would need to be raised to $180,000.
Presto. Social
Security's long-term (beyond 26 years from now) problem would be solved.
So there's no
reason even to consider reducing Social Security benefits or raising the
age of eligibility. The logical response to the increasing concentration
of income at the top is simply to raise the ceiling.
Not
incidentally, several months ago the White House considered proposing
that the ceiling be lifted to $180,000. Somehow, though, that proposal
didn't make it into the President's budget.
>> This
commentary was published on Feb 17, 2011 on the authors blog:
www.RobertReich.org
Robert Reich is
Chancellor's Professor of Public Policy at the University of California
at Berkeley. He has served in three national administrations, most
recently as secretary of labor under President Bill Clinton. He has
written thirteen books, including The Work of Nations, Locked in the
Cabinet, Supercapitalism, and his most recent book, Aftershock. His
"Marketplace" commentaries can be found on
publicradio.com and
iTunes.
Feb.
26, 2011 -
New Jersey Governor Chris Christie, a Republican presidential hopeful,
says in order to "save" Social Security the retirement age should be
raised. The media are congratulating him for his putative "courage."
Deficit hawks are proclaiming Social Security one of the big
entitlements that has to be cut in order to reduce the budget deficit.