It’s not, or at least it shouldn’t be, about Social Security.
Social Security is neither the cause of nor the solution to our nation’s financial problems.
Nonetheless, a bipartisan presidential commission looking for ways to reduce our national debt is making noises about dragging Social Security into the squabble. The Republican co-chair of the commission, former U.S. Sen. Alan Simpson, fed that impression in an email last month when he referred to Social Security as “a milk cow with 310 million tits.” Simpson also argued in that email that Social Security is in trouble unless it can be made sustainable and solvent over the long term.
Fortunately, that is an exaggeration of the program’s condition. The facts are as follows:
1.) With no changes in taxes or benefits, Social Security can continue to pay 100 percent of all promised benefits between now and 2036. It can do so by tapping a $2.5 trillion trust fund created precisely to cover the retirement years of the Baby Boom generation.
2.) Beginning in 2037, and for every year thereafter, Social Security would be able to pay recipients only 76 percent of promised benefits.
3.) That post-2037 gap could be closed with relatively minor fixes. For example, raising combined SSI payroll taxes from 12.4 to 14.4 percent would cover the bill entirely. A combination of a slight payroll tax increase, applying the tax to earned income above the current tax ceiling of $106,000 and adjusting scheduled cost-of-living increases could also eliminate the gap relatively painlessly.
If those are the kind of fixes that Simpson envisions — if his goal is to fix Social Security solely for the purpose of fixing Social Security — then that’s a discussion worth having.
However, if Simpson and others are after larger game — if they hope to tap the $2.5 trillion owed to Social Security as a way to address the nation’s larger fiscal problems, for example — they’re going to have an all-out fight on their hands.
Take a look at the chart above, from Stephen Goss, the chief actuary of the Social Security Administration. It documents, as a percentage of GDP, the amount of money collected each year in Social Security taxes above and beyond what Social Security paid out that year.
Note the year 1983. That year, a commission appointed by President Ronald Reagan recommended significant increases in Social Security payroll taxes in order to make the program actuarially sound. The idea, embraced by Congress, was that the additional revenue would be used to build a surplus in the Social Security Trust Fund so that when the Baby Boom generation began to reach retirement age, the money would be there.
Today, that surplus would amount to $2.5 trillion. But notice that word “would.” For more than 25 years, while working people were told that they were paying extra taxes to ensure their retirement security, that surplus tax revenue was actually being siphoned off to run general government operations. In effect, higher Social Security taxes were being used to offset revenue that had been lost to the government when Reagan cut income and corporate taxes, disguising the true fiscal impact of those cuts.
Today, technically, a surplus of $2.5 trillion now sits in the trust fund, ready to be used for Social Security. In reality, the trust fund contains government IOUs that taxpayers today and tomorrow will have to redeem, probably through payeing higher taxes. So here’s the question now before the body politic:
Will taxpayers — and politicians — honor the $2.5 trillion debt that is owed to Social Security and those who paid into it? Or, will they breach that trust by claiming that the debt is too big to be repaid in its entirety, and that benefit cuts will be required?
There’s no question that the nation’s longterm financial crisis is serious. Eventually, it will have to be addressed both through cuts in spending — including entitlements — and through tax increases. However, as long as it is made actuarially sound, Social Security ought to be exempt because it has been and continues to be a self-funding program, requiring no input from the general treasury other than repayment of what the treasury has borrowed.
To repeat, Social Security is not to blame for our financial problems. And it should not be treated as a piggy bank to be raided and not repaid, at the expense of those who count upon it.