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
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
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?
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.