Cutting Social Security Is Unnecessary - And Just Plain Wrong

The good folks over at Alternet have three things they want you to know about Social Security:

1. Social Security is a self-financed program.

First, let’s talk about how Social Security works. If you are employed, you most likely pay a certain amount of your paycheck, generally 6.2 percent, to Social Security. Your employer kicks in the same amount. (The exception would be a few state and local workers who get public state pensions instead of Social Security).

The Social Security program has an independent budget that is separate from the rest of the federal government. Social Security is fundamentally a pay-as-you-go system, which means that payments collected today immediately go to pay benefits.

The finances of the Social Security program have been managed extremely well, and until the recent financial crisis and recession, more payments were collected than were needed for benefits and the surplus was placed into a trust fund. The Social Security program has loaned this extra money to the U.S. government, which used it for other things. In return, Social Security gets interest-bearing Treasury securities, or bonds.

The Wall Street-driven financial crisis and recession reduced the payroll collections, and in 2010, Social Security began to tap into its trust fund, which had been built up for just such an emergency.

You might hear some guy from the Cato Institute getting clever by pointing out that Social Security is using interest on the government bonds it holds to help pay for benefits, and therefore adding to the deficit because the government has to pay that interest. That’s a bit like saying that because I was smart and saved money and then loaned it to my profligate neighbor, I am somehow responsible for increasing his debt when I ask him to pay back what he borrowed. Would any reasonable person make such an upside-down claim?

As economist Dean Baker has explained, it’s a perfectly ordinary thing for bond holders to use interest collected on bonds. Grandmothers with pensions do it, and they aren’t generally accused of adding to the deficit. 

2. Social Security is not in danger of running out of money.

Another thing you hear is that Social Security is going to run out of money sometime in the future. Actually, by the forecasts made on the part of the Social Security Trustees, the program isn’t going to run out of money even if its trust funds — and that’s a big if — get depleted some decades down the road (2033 is the latest projected date).

The Trustees report is based on predictions that are deliberately conservative. Yet even with its worst-case scenario reasoning, the report says that the tax income would still be enough to pay about three-quarters of scheduled benefits through 2085. Does that sound like a crisis? No, because it isn’t. The real crisis is the growing number of Americans who will face retirement without traditional pensions and not enough money in their 401(k)s. Cutting Social Security would only add fuel to that fire.

3. There is no justification for tampering with Social Security’s financing right now.

Economists are not very good with crystal balls. If you don’t believe this, look at how few of them predicted the last financial crisis. Yet they are addicted to making prognostications.

Social Security’s finances are in perfectly good shape: the Social Security Trust Fund has a $2.7 trillion surplus and will continue to grow until 2021. Perhaps there will be more trouble some decades down the road, but we will be better able to make those assessments when we actually see what the reality is. To cut benefits right now because of a problem that might occur years from now is ridiculous, unless of course your real concern is to cut taxes, which is naturally the desire of America’s Ebeneezer Scrooges.

If you insist on doing something right now, there is a very simple way to generate more revenue for the program, and it doesn’t involve cutting benefits in all the myriad ways the politicians and pundits have proposed: Raise the cap on earnings taxed to pay for Social Security from its current $113,000 to something like, say, $200,000. Presto! You now have loads more revenue and you did not keep grandma from buying medicine.

You don’t hear the greedy rich jumping on board with this idea, because they don’t like to pay taxes, even when doing so might benefit the economy where they make their millions. You don’t hear the financiers cheering this approach, because they really want to see the program destroyed so they can get their mitts on your retirement money. But it would certainly suit everybody else.