Social Security is under attack by Republicans and Democrats (
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The Republican-dominated Congress, with the help of a cadre of sell-out conservative Democrats in both chambers, are gearing up to attack Social Security again, under the guise of "saving" the program.
The attack will be brutal, because the program's assassins understand that this is probably their last chance to undermine Social Security. With the Baby Boom generation born after 1946 now seriously starting to file for retirement benefits, it will soon become such a mainstay for so many people that it will be impregnable, unless already undermined.
A person born in 1946 could have retired at age 62 as early as 2008, and next year could retire at 70 and receive maximum benefits. There are already seven years' worth of Baby Boomers who are at least eligible to start collecting benefits. By the time the last Baby Boomer born in 1964 is eligible to retire in 2026, the "senior lobby" of Social Security-eligible voters will be more double what it is today, and more importantly, will represent a 50% larger as a proportion of the voting population than in today's population. Social Security's enemies in Congress and in the business world know that as powerful as the elderly vote is today it will be 50% more powerful in years to come. And don't forget, it's not just retirees who ardently support Social Security. It's people in their 50s and early 60s, who are looking ahead at the program as their salvation in retirement.
Polls show that even among the young, there is strong and abiding support for this flawed but critical program founded in 1936, which today provides 100% of income for one-seventh of all America's elderly, and 90% or more of income for one-third of the elderly. Another one-third depend upon those benefits for more than half their income. Most of the rest too depend on their Social Security benefits for basic expenses like food and rent. It's the rare American who just uses their benefit checks for vacations, luxury purchases or investment purposes.
But for all that Americans remain incredibly ignorant about the program, and are losing out on many of its benefits because of that ignorance. If this information were more readily available and understandable, it would be far harder for the program's enemies to successfully attack it.
I've been writing about Social Security for years, and am happy to say that, only weeks away from my 66th birthday, am also getting close to the point where I will personally become a beneficiary of the program.
First of all, let's address to the main arguments of attack made by Social Security's enemies. These are:
- Social Security is going to go bankrupt. This bogus argument alludes to the fact that the Social Security Trust Fund, a surplus that was deliberately created over time as a result of a "reform" of the system instituted in a compromise plan developed by President Ronald Reagan and the Democratic Congress in 1983, specifically to provide funding for the looming wave of Baby Boomers who were not only more numerous than anticipated, but who were living longer than their parents. But while the reform didn't quite provide enough funding, Social Security will not, and cannot go bust. There are several reasons for this. The first is that Social Security is not a private annuity. It is a government program, and its payouts to retirees are not and have never been primarily from the Trust Fund (which is still growing), but from current FICA tax payments being made by current workers. The truth is that even if, in the tremendously unlikely case (more on this later) that Washington doesn't fix the shortfall by coming up with more sources of revenue, there will be enough current workers paying into the program along with their employers after 2033, when the Trust Fund is predicted to be exhausted, to pay 77% of promised benefits to retirees indefinitely into the future.
* Social Security might not be here when you retire. This scare line, popular with some financial advisors dealing with younger clients, is designed to get them to invest more money with the advisor, who of course gets to collect the management fees. But it is, in the words of one expert, Michael Kitces, a partner and director of research at Pinnacle Advisors Group in Columbia, MD, "bullshit." As he puts it, "The idea that the Social Security program will be repealed is simply ludicrous. It may be tinkered with, they might raise the retirement age, for instance, or increase the payroll tax, but even if they did nothing at all to fix it, today's college student would retire getting 75% of today's benefits. And the political reality is that it could never be taken away."
In terms of both the two above arguments -- that the soon-to-retire may see their benefits cut in 2033, or that young people may never get their Social Security -- the reality is that for the very same demographic reason (the Baby Boomers) that the Social Security Trust Fund predictably and as planned decades ago is being run down, there will be a huge surge in retiree and near-retiree voters who will ensure that fixes are made in the program to assure full, and probably even better benefit payments going forward. Don't believe the lies being put out that your Social Security benefits won't be there when you need them! It's a political, not a financial or actuarial issue, and you simply need to make sure you are politically active in defending your benefits, and not in 2033, or whenever you retire, but now, when the program is under attack.
- Social Security is an Age War, with the Greedy Elderly Robbing their Kids. This absurd arguments actually undermines the prior one, which implies that it's all about the Trust Fund, by making the point the benefits are actually paid by current workers, i.e. by the children and grandchildren of retirees. But it ignores the reality that those working kids and grandkids are glad to be providing their parents and grandparents with a secure income in retirement. I have never met a young person who complained that their retired parents or grandparents were getting too much money from Social Security! Nobody would want to go back to the old days when children and grandchildren had to provide for the entire cost of caring form their elders.
And don't forget -- Social Security is not just a retirement program for the elderly. It is also a disability payment program for those of any age who can no longer work because of some physical or mental impairment. Those benefits can be substantial too, and in some cases can even provide spousal benefits for a partner. The critics of the program don't mention that, though they do also want to cut the disability program, and in fact one of the first thing this new Congress did was push for a 20% cut in Social Security disability payments -- a disgusting move that is being opposed by progressives but that could still pass.
- The wealthy don't need Social Security. It should go just to the poor. Well, actually, while it's probably true that the truly wealthy -- those who are retiring with incomes of $200,000 or more -- probably don't need those benefit checks, taking them away would do little or nothing to alleviate the burden of funding checks for the rest of us. What it would do is make higher-income earners opponents of the program, by turning it into welfare. One of the key things that has made retirement programs popular and enduring in countries around the world is that they are universal. Everyone pays into them, and everyone receives the benefits. Don't get sucked into the trick of turning the program into a welfare program. We've seen what happens to those: just look at Food Stamps.
Those are the arguments being used to attack the program. Meanwhile, the fixes for the program are not being talked about. Instead, the talk on the right, and among sell-out Democrats who take their money from Wall Street (which would love to privatize retirement entirely, making everyone's future live or die based on the performance of the stock market, which would allow the industry to such fees out of every desperate worker), is of cutting benefits, for example by skimping on annual benefit adjustments for inflation, or by raising the retirement age. Actually, there are some easy ways to raise the money to pay full benefits after 2033, and even to raise benefits (The average US Social Security benefit only replaces about a third of the income a person or couple was receiving before retirement, compared to 60-66% of final income for people who retire in most of Europe and Scandinavia.) Here are some of those solutions:
- Eliminate the cap on income subject to Social Security taxation. At present that cap is $118,000. This means that if a person earns more than $118,000, neither the worker or the employer pays any more taxes on that other income. If the cap were completely lifted, so that all income were subject to the same 12.4% tax (6.2% for the worker, 6.2% for the employer), it would raise some $150 billion annually and Social Security benefits would be fully funded fully beyond 2045, to a time when all but the most methuselan of Baby Boomers will have had gone to that great Woodstock in the sky.
- Put a small tax on all short-term stock trading. Most of the trading on the stock market these days is being done not by individuals by by computers run by the too-big-to-fail banks and by hedgefunds. Just check a graph of the market on almost any day, and you'll typically see the day's trading on the Dow, the S&P 500, the NASDAQ or any other index begin with an almost straight line rise or fall that often is quickly reversed by the subsequent slower trend in trading. What's happening is that the computer traders move in and get the jump on everyone else, capture all the gain (or make puts on the losses) based upon whatever news is driving the market that day, positive or negative, and then let the rest of the suckers diddle around for the rest of the day winning and losing the old-fashioned way. It's estimated that a 0.5% tax on high-speed trading only, which would only impact the top 1% of Americans -- the very wealthiest people -- would raise $300-350 billion a year in new revenue. If this were applied to the Social Security program it would not only solve projected funding issues, but allow the system to boost benefits to start to be more of a real retirement program, instead of a just a backstop and poverty-prevention program.
- Fully tax Social Security benefits paid to those earning over $200,000 a year. At present, Social Security benefits are taxes at varying rates depending upon the retiree's income, but even for the wealthy, only 85% of the annual benefit is taxable. The other 15% is tax free. While this won't raise a huge amount of money, it would help finance any campaign to raise benefits, and makes perfect sense.
- And finally, of course, there's raising the FICA tax. While raising the tax, currently 6.2% for workers and 6.2% on employers for the first $118,000 of income (and 12.4% on net income for the self-employed), is not the most progressive of solutions to increasing funding for the program, Kitces notes that doing so, with just a 1.5% increase in the FICA payroll tax (keeping the current income cap) for both worker and employer, would "fund current benefits fully for the next 100 years and beyond." Kitces notes, "This is not a significant increase for people. For a low-income person earning $300 a week, it would be $4.50. And when during the recession, the government cut the FICA tax by 2%, people didn't even notice the difference in their checks."
The fundamental point is, there is no real crisis, what funding shortfall is being projected for 2033 could be easily solved at little or no cost to people of low income and negligible cost to everyone, including the wealthy, and there is absolutely no threat to the system except for the manufactured one by politicians backing the greedy desires of Wall Street, the US Chamber of Commerce and the wealthiest 1% of Americans.