[Center on Budget and Policy Priorities] Social Security benefits are a perennial target for cuts because the program faces a long-run shortfall. Some lawmakers and opinion leaders mistakenly portray the program’s benefits as lavish. The fact is, benefits are modest and workers have earned them by paying into Social Security — protecting themselves and their families if they retire, become disabled, or die leaving family members to support.
Here are five key facts that policymakers need to keep in mind:
Social Security benefits are modest.
Most beneficiaries rely on Social Security for most of their income.
For most seniors, Social Security is the only income they receive that’s guaranteed to last as long as they live and to provide full inflation protection.
Social Security benefits in the United States are lower than many other developed countries.
Future retirees already face lower benefits (relative to their past earnings) than current retirees because of a rising Social Security retirement age and escalating Medicare premiums.
These facts argue for avoiding cuts in future benefits — a position that the majority of Americans support strongly.
Social Security faces a real but manageable long-term shortfall. The program’s trustees project that its trust fund reserves will last until 2035, and that even after that, tax revenue anticipated under current law would support three-fourths of scheduled benefits. Social Security’s fundamental challenge is demographic, traceable to a rising number of beneficiaries rather than to escalating costs per beneficiary. In the mid-2030s, when the large baby boom generation exerts its greatest demographic pressure, benefits will cost just under 6 percent of Gross Domestic Product (GDP), up from 5 percent today.
There is no imminent crisis, and policymakers have time to put Social Security on sound financial footing. However, they shouldn’t wait until the last minute because a carefully crafted solvency package could strengthen public confidence in the program, share sacrifices fairly across generations, and give workers plenty of notice so that they can plan their work, saving, and retirement.
[Via NCPSSM] While it’s laudable that Congress reached a 2020 spending deal in time to avert a government shutdown, the news wasn’t great for those who rely on the Social Security Administration (SSA), which basically means almost every American senior.
Monday’s $1.4 trillion agreement – which does increase spending on other programs for older Americans – gives SSA only a small bump in its operating budget. The $99 million increase (less than 1%) over 2019 funding levels does not even keep pace with inflation, and perpetuates the decade-long divestment in crucial customer service functions for Social Security’s 69 million beneficiaries. The agency has been chronically underfunded at a time when 10,000 Americans turn 65 every day.
The divestment began at the start of this decade, coinciding with the Republican take-over of the House and the ascendancy of the Tea Party. Congress slashed SSA’s operating budget 11% (adjusted for inflation) between fiscal years 2010 and 2019. Left to fend for itself with a growing customer base and reduced resources, the SSA began closing field offices and furloughing employees. Customer service suffered and seniors – especially those of modest means – paid the price in the form of increased wait times to talk to an SSA representative and long delays in disability hearings during which thousands of claimants died before their appeals could be adjudicated.
“[Nearly one million] people were waiting for appeals hearings before administrative law judges on disability benefit applications in fiscal 2018. In the same year, the average wait time for callers to the Social Security toll-free number was 24 minutes, up from 13.6 minutes in fiscal 2016 – and 15% of callers received a busy signal. Social Security’s processing centers, which handle claims after beneficiaries are determined to be eligible, faced an enormous backlog of 2.9 million cases this year.” – Mark Miller, Reuters, 6/5/19
After years of cuts, Congress increased SSA’s operating budget by 2% for FY 2018. But the agency’s FY 2019 budget was cut by 2%, leaving SSA financially treading water. SSA’s former acting director, Nancy Berryhill, had requested a healthy $500 million increase for 2020. The Democratic-controlled House was poised to offer a $300 million (or roughly 3%) bump. Unfortunately, the Senate and President Trump sought a zero increase for SSA, producing a House-Senate compromise of only $99 million.
The main culprits are automatic caps that were imposed on discretionary federal spending beginning in 2011. Recent Congresses have adjusted those caps to allow more spending, but SSA’s budgets have continued to languish. This is especially egregious because SSA operations are funded by workers’ Social Security payroll contributions, and should not be lumped in with discretionary spending and subject to arbitrary caps and cuts. Seniors have earned their benefits and expect them to be administered with minimal time, trouble, and pain.
Earlier this year, a bipartisan three-person commission recommended exempting SSA’s operating budget from automatic spending caps. Meanwhile, Rep. John Larson’s Social Security 2100 Act would require that SSA’s administrative budget be fixed at 1.5% of total benefits paid. For 2020, that would translate to a $15 billion budget compared to the actual $11 billion just approved by Congress – or 36% more under Larson’s formula. That would go a long way toward restoring the level of customer service that beneficiaries truly need and expect.
[Forbes] Most likely you will pay your Social Security taxes all year round. But some high earners will stop paying a few hours after we ring in the New Year, many before we return to work in the new year.
Social Security benefits are paid by the FICA tax, which is 12.4% of pay (split evenly between the employer and the employee). But earnings are taxed only up to a cap. In 2019, the cap was $132,900, a threshold that rises to $137,700 in 2020. Ninety-five percent of American workers pay FICA tax all year long because our annual earnings fall below the cap, while 5% stop paying sometime during the year when their earnings reach $137,700.
Who are these people who don’t pay Social Security taxes all year?
People don’t post their salaries, so we don’t know who is the highest salaried person in America. We know the richest man in the world is Jeff Bezos, but the system doesn’t tax wealth, it taxes wages and salaries (Social Security could tax wealth, but it never has). Public companies post the salaries and bonuses of their executives and these filings show that the highest-paid executives in 2019 were Safra Catz and the late Mark Hurd, the co-CEOs of tech giant Oracle, who each earned $108 million. At that pay level, executives effectively finish paying their Social Security taxes before noon on New Year’s Day.
In 2018, 168 million workers paid a total of $874 billion into the Social Security system. I don’t know the names of all the 1,174 people in 2018 who earned over $20 million or the 211 employees who earned over $50 million each (with an average salary of $95 million). But these extremely wealthy people paid Social Security taxes only on the first $128,400 they earned in 2018. On average, those 211 people at the top will stop paying Social Security taxes about 12 working hours into 2019.
Social Security Is Short of Funds Because of Income Inequality, Not Longevity Increases
[Mark Miller | Marketwatch] If you’ve ever experienced a long wait to get help from the Social Security Administration, the agency has some good news for you: the pace is about to pick up a bit.
Repeated cuts to the agency’s administrative budget over the past decade by Congress have forced the closing of field offices, staff cuts and long delays on Social Security’s toll-free line — and an enormous backlog of people waiting for appeal hearings on disability insurance claims.
Last week, Social Security Commissioner Andrew Saul announced two steps that should help make a dent in the problem:
Social Security will reopen field offices nationwide on Wednesday afternoons starting on January 8, restoring closings that were put in place in 2012.
The agency also will hire 1,100 new employees to provide service on the national 800 number (1-800-772-1213) and in its processing centers, where paperwork is handled. The agency is currently bringing on board 100 new processing center employees and approximately 500 new teleservice representatives for the 800 number. Some additional hires will be made later in 2020.
That’s the good news. What’s less clear is how Social Security will fund this expansion, since the agency is not receiving additional funds from Congress to handle it.
On my RetirementRevised.com podcast, I speak with one of the nation’s top experts on the administrative workings of Social Security: Kathleen Romig, senior policy analyst at the Center on Budget and Policy Priorities, a progressive think tank.
Congress has cut Social Security’s budget nearly 11% between 2010 and 2019, after adjusting for inflation. During the same time, the number of Social Security beneficiaries grew by more than 16%.
Meanwhile, Social Security is operating under Congressional action that only allows for flat funding. The House’s 2020 appropriations bill would barely allow it to keep up with inflation, while the Senate bill would effectively cut the agency’s budget.
Saul is new at the Social Security Administration — sworn in June 17, 2019 — and is the first confirmed commissioner since 2013. Everyone who served in the last six years had “acting” in front of their title.
“I’m happy that the new commissioner understands how important customer service is and how we need to invest in it,” says Romig. “But I’m also puzzled about where he’s getting the money to make these hires.”
[LA Times] In a world where the rich always seem to get richer whatever the game, Social Security always seemed to be one program that was truly “progressive” — it benefited the working class more than the moneyed class. Right?
In reality, despite painstaking efforts to ensure that Social Security benefits are distributed fairly, the wealthy are receiving disproportionately large payouts after all. That’s the finding of a new study by Alicia H. Munnell and Anqi Chen of the authoritative Center for Retirement Research at Boston College.
The mismatch lurks within the adjustments made both when workers claim Social Security benefits early — that is, before their full retirement age — and late. Claim early, and monthly benefits will be reduced; claim late, and they’ll be raised. These adjustments aim to make the timing decision actuarially neutral: On average, total lifetime benefits should remain equivalent whether one claims before one’s full retirement age or later.
Munnell and Chen calculate that the actuarial adjustments are out of whack and favor late claiming. “As a result, they increasingly favor higher earners,” they write.
Munnell and Chen identify two culprits in throwing off the math: One is interest rates, which have been lower than experts at the Social Security Administration and on Capitol Hill anticipated when they set the differentials. (The early-retirement option was made available for women in 1956 and for men in 1961. The credit for delaying retirement was introduced in 1972 and recalculated in 1983, according to the authors.)
The second factor may be more significant: Average life expectancy is rising. As a result, retirees are collecting benefits for longer than the designers expected. Longevity is rising faster for wealthier individuals than middle- and lower-income workers, however, which is what makes late claiming more of a boon for the wealthy.
Before exploring the ramifications of these findings, let’s look at how early and late retirement affect Social Security benefits.
[Economic Opportunity Institute] Social Security improves the economic security of more than 1.3 million Washington residents and their families, and contributes significantly to economic stability and growth across the state. While it is currently on sound fiscal footing, federal lawmakers should act now to remove Social Security’s cap on taxable earnings, raise benefits and make other improvements to ensure it meets the needs of today’s workers, families and retirees.
Social Security improves economic security, stability and growth in Washington
Social Security provides income for 30 percent of the state’s households. More than 1.3 million Washington residents receive Social Security benefits, representing 18 percent of the state’s population. Of people receiving benefits, 77 percent (more than 1 million) are age 65 or older, 17 percent (230,000+) are age 18-64 and 6 percent (73,000+) are under 18. Nine in 10 residents age 65 or older receive benefits; 55 percent of those (568,000+) are women.
Social Security dramatically reduces poverty among the elderly in Washington. Without Social Security, elderly poverty rates would climb from 7.2 percent to 34.4 percent. Even though average retirement benefits are just $1,490/month ($17,880/year), Social Security kept an estimated 317,000 Washingtonians age 65 or older from living in poverty in 2018.
Social Security is the primary insurance protection for 95 percent of Washington’s 1.8+ million children and families. In the event a parent or spouse were to die or be disabled, more than twice as many children would live in poverty if there were no Social Security benefits. In 2018, nearly 108,000 widow(er)s and children in Washington received an average $1,291/month ($15,489/year) for survivor’s benefits; more than 207,000 disabled workers and their families received an average $1,301/month ($15,616/year).
Social Security significantly boosts Washington’s economy. In 2018, benefits were equivalent to 5 percent of state total personal income – generating an estimated $42.3 billion in economic activity, more than 268,000 jobs and nearly $2.2 billion in state and local tax revenue. In December of 2018 alone, more than $1.9 billion in Social Security benefits went directly to local economies – from populous King County ($450 million to 295,000 people) to rural Garfield County ($889,000 to 665 people).
Why Congress should “scrap the cap” to bolster the Trust Fund
In the early 1980s, Congress increased payroll taxes and reduced future benefits for millions of Americans in order to build a surplus in the Social Security Trust Fund for the Baby Boomer generation’s retirement. It worked as planned; the latest Trust Fund report projects Social Security can pay all benefits in full and on time until 2035, and three-fourths of scheduled benefits thereafter, even if Congress takes no action.
But lawmakers need to step up. Cuts to Social Security – whether benefit reductions, more limited COLAs, or retirement age increases – will diminish economic security for nearly every American. It will disproportionately affect low- and middle-income families, women and workers of color, who (unlike wealthy individuals) often do not have significant retirement savings and must work further into old age in more difficult and demanding jobs.
To avoid this, Congress should “scrap the cap” to bolster the Trust Fund. Today, workers and employers each pay 6.2 percent of wages to finance Social Security, but there’s a cap on taxable wages ($132,900 in 2019). So while 94 percent of workers pay Social Security tax on every paycheck, most of the earnings of the top 1 percent, and especially the top 0.1 percent, escape being taxed.
Ensuring every American pays the same effective tax rate on their wages would eliminate 85 percent of the Trust Fund’s projected shortfall. Only the richest 6.1 percent of workers (less than 1 in 15) would pay more. And it’s a popular idea: two-thirds of Americans support requiring high-income workers to pay Social Security taxes on all of their wages (as is already the case with Medicare taxes).
How America can create a more equitable and secure retirement — for everyone
As the nation’s most efficient, secure, universal and portable source of retirement income, Social Security has all the advantages (and none of the disadvantages) of both traditional pensions and 401(k)s – and it offers benefits unavailable in the private sector, like automatic inflation adjustments and benefits for divorced spouses.
Federal lawmakers should take steps to expand and improve Social Security for today’s workers and families by:
Raising benefits overall: Adjusting the benefit formula to raise benefits for those who have had careers in low-wage occupations – such as childcare, restaurant service, or home health care – would better protect the financial security of people just scraping by, particularly older women and people of color.
Protecting the very elderly: Living to extreme old age, or living without a spouse greatly increases the risk of poverty. “Bump-ups” in benefits for seniors living past a certain age and increasing benefits for elderly widow(er)s would reduce financial insecurity among these vulnerable people.
Reducing gender and racial inequities: Caring for children or aging family members can cause many people, especially women, to reduce time in the workforce, greatly affecting their retirement benefits. Reducing the number of years’ earnings used to calculate benefits from 35 to 28 can eliminate the caregiving penalty. It would also help those with reduced access to employment due to recessions, discrimination, local economic conditions or disasters, and other barriers.
Restoring student survivor benefits: Before 1981, children of retired, deceased, or disabled workers continued receiving benefits through age 22 if they attended college. Now benefits end once a young person both turns 18 and finishes high school. Reinstating college benefits could help children and their families achieve their dreams, as well as reduce socioeconomic barriers to education and lifetime opportunities.
Adopting the CPI-E inflation index: Over the past decade, Social Security’s existing cost of living adjustment (COLA) formula has led to average increases of about 1.4 percent per year. However, comparatively larger increases in Medicare premiums have often meant many seniors see no additional income from COLAs. Adopting the consumer price index for the elderly, or CPI-E, would more accurately calculate adequate COLAs for retirees.
Restoring office access & services: The Social Security Administration’s (SSA) expenses are self-funded and account for less than one penny of every dollar spent. But from 2010 to 2019, its operating budget fell nearly 11 percent in inflation-adjusted terms — even as the number of Social Security beneficiaries grew by 17 percent. SSA staffing levels have declined by 12 percent since 2010, hampering its ability to perform its essential services. Restoring full funding would help ensure people have dependable and easily accessible in-person service at Social Security offices, often at critical moments in their lives.
Promising federal legislation that needs your support
Congress is considering several measures that would improve Social Security in one or more of the ways outlined above, including: the Social Security 2100 Act (H.R. 860/S. 269), the Social Security Expansion Act (H.R. 1170/S. 478), the Strengthening Social Security Act (H.R. 2654), the Protecting and Preserving Social Security Act (H.R. 2302/S. 1132), and the Social Security for Future Generations Act (H.R. 4121).
Even the worst-case scenario shows that the program will still pay out benefits.
[Portland Press Herald] I have good news for younger generations worried that they won’t be able to claim their Social Security benefits because we older generations have ripped them off and will be leaving nothing behind: Your fears are unfounded.
Don’t just take my word for it. Consider the work of my colleague Charles Blahous at the Mercatus Center at George Mason University, who is a relative pessimist (some would say an alarmist) on this issue. His reputation commends his work as a good benchmark for where Social Security really stands.
According to his estimates, if no further steps are taken to shore up
the finances of Social Security, the system will stop being able to
meet its scheduled payment obligations sometime in the 2030s. (Note that
benefit hikes are part of the schedule.) That would be bad, but even
under this scenario the system is still paying out a roughly constant
level of inflation-adjusted benefits over time, at least as those
benefits are defined as a percentage of workers’ taxable earnings (about
13 percent). Of course, to the extent those taxable earnings rise, the
benefits will be rising, too, even if not at a spectacular pace.
Keep in mind that this is the worst-case scenario offered by a relative pessimist.