Federal budget deficits currently are unusually high, but Social Security bears no responsibility for today’s shortfalls. Keep in mind that the federal government was experiencing budget surpluses at the end of the 1990s, but those quickly were transformed into deficits early in the 2000s because of large tax cuts and increased governmental spending on the wars in Iraq and Afghanistan, as well as homeland security.
The nation’s fiscal situation worsened when the recent economic downturn caused federal revenues to collapse along with taxable incomes and profits, greatly widening budget deficits. Because Social Security continued to collect hundreds of billions of dollars more from payroll taxes than it spent on benefits throughout the decade, however, the program actually reduced overall federal budget deficits far below what they otherwise would have been.
As the graph above shows, the dominant cause of the projected long-term debt problem is not Social Security, nor short-term deficit spending to aid economic recovery, but rather the expectation that health care costs will continue to rise much more rapidly than overall inflation. Projections show that combined Medicare and Medicaid outlays for the federal government will double, from about 5 percent of gross domestic product (GDP) today to about 10 percent by 2030.
Social Security’s expected growth is expected to be far more modest, and much more manageable, gradually rising from the same 5 percent of GDP today to about 6 percent by 2030, as the Baby Boom generation retires.
Throughout that period, the revenues dedicated to the program from payroll taxes and commitments from its large and growing trust funds will be more than sufficient to pay benefits in full until around 2037. At that point, if nothing is done, benefits would have to decline by about a fifth. But even if the Trust Fund is exhausted in 2037, payroll taxes alone at the current level would cover benefits averaging $19,300 ‐‐ about $1,600 more than today’s typical retiree receives (after inflation).
By Alex Stone, Communications Manager, Economic Opportunity Institute
At NASI’s 2011 annual conference, the session “Should We Adopt the Social Security Recommendations of the Fiscal Commission Co-Chairs?” demonstrated the complexity of the Social Security reform debate.
Charles Blahous, a Social Security trustee, argued in favor of adopting the Fiscal Commission proposals, which he characterized as a “reasonable compromise” because it utilizes ideas from both sides of the aisle.
Andy Stern, a member of the Fiscal Commission, ultimately voted against the co-chairs’ proposal. He emphasized that while a crisis exists, it is of middle class retirement security in general – not Social Security – due to shrinking personal savings, fewer pension plans, and the erosion of family-wage jobs.
Janice Gregory, NASI President, then pointed out major flaws in the Fiscal Commission’s proposal, arguing that it goes too far in the direction of benefit reduction, and unfairly characterizes Social Security as contributing to the deficit. Gregory also expressed concern that the proposal’s dramatic changes are unwarranted because Social Security shows stable long-term cost projections and a large trust fund.
Despite disagreeing on the proposal, the panelists were able to find common ground on the value of maintaining Social Security’s benefit-payment link, and its importance to lower- and middle-income Americans. These two points are critical measures of success for the Social Security program, but weren’t given equal value in the Fiscal Commission’s final proposal.
Strengthening Social Security was never the main charge of the aptly-named Fiscal Commission. Rather, the foremost concern of its co-chairmen was to rein in the deficit, and their proposal reflects that ultimate goal. While their proposal maintained the benefit-payment linkage, they recommended increasing the retirement age for future generations and adopting a new COLA formula that would lower benefits.
Further, the Fiscal Commission did a disservice to Social Security by taking it up as a deficit-reduction measure. This reinforces the false notion that Social Security contributes to the deficit and needs ‘saving.’ In fact, the Social Security Trustees project that in 2037, the trust fund will be expended – at which point payroll taxes would cover 78% of benefits. Lifting the payroll cap now, from its current $106,800, is an easy solution to that problem. It would maintain the benefit-payment link for nearly every American worker, and allow Social Security to expand benefits to lower- and middle-class recipients.
The real charge of the Fiscal Commission – deficit reduction – is an important one, but a robust middle class must exist to drive innovation and fuel our economy. And if deficit reduction were truly a top priority of our elected officials, it’s unlikely that the recent tax cut extension would have been approved.
Economic and social policies of the past century have fueled the growth of the American middle class. A strong middle-class will help to pull us out of this, and future, economic slumps. But in order to do so, families must be able to spend their money on higher education, saving for retirement and purchasing a home – not supporting their elderly parents and paying for costly medical care. Social Security is not a retirement program, nor a replacement for one. It’s a poverty prevention program, and one of the most successful in American history.
In the end, the debate over Social Security is a debate over how we will measure success in America. Will it be with basic accounting principles, stock values, and long-term economic projections? Or will it be a more refined approach – such as triple bottom line accounting – which determines success using both economic and social measures of good? Our collective success is inextricably linked to Social Security. Improving benefits now is crucial, both for the nation’s short-term economic recovery, and for the long-term economic security of our families and communities.
Click here to view a video of the session, “Should We Adopt the Social Security Recommendations of the Fiscal Commission Co-Chairs.
A great article from Remapping Debate tells the story of people imagining their lives (or those of their children) with a significantly delayed retirement age:
Barrett paused a moment. She is 30 years old, and had never thought about the possibility of having to work another 40 years to retirement. She has not yet built her family, or even met the husband whom she pictures at her side when she retires. “To me,” Barrett said, “it’s far away.”
Many of the prescriptions to “fix” Social Security — like the plan supported by several members of the Deficit Reduction Commission chaired by Alan Simpson and Erskine Bowles — recommend reducing payments to some workers and gradually delaying the age at which senior workers can collect benefits.
The people who would absorb [the] final impact [of doing so] are in kindergarten now, and no one is evaluating whether withholding full benefits from them until age 69 (or, perhaps, later, if another “Deficit Reduction Commission” explains that further restrictions are the only way to proceed), furthers or undermines the public good.
In considering Social Security, policy makers and the public seem almost intent on averting their eyes from “the big picture” said Stephen Scheinthal, a geriatric psychiatrist who is associate director of the New Jersey Institute for Successful Aging at the University of Medicine and Dentistry of New Jersey’s School of Osteopathic Medicine. “There’s an idea that, ‘We’re going to do this, we’re going to do this, and be damned with what the realities are.’ And the realities are significant.”
“There needs to be a way,” Scheinthal added, “to assess it beyond the finances.”