Commentary
Page 12
Street Roots • April 14-20, 2017
Social Security works. Don’t let Trump destroy it
BY M ARTIN HART-LANDSBERG
C O N T R IB U T IN G C O L U M N IS T
e afraid, very afraid. There is good
reason to fear that President Trump
and the Republican party are out to
destroy our Social Security system.
Social Security is an incredibly popular
program. For decades, it has provided a
reliable income floor for
seniors. We need to prepare to
fight for it.
President Trump and the
Republicans failed to achieve
one of their top goals: the gutting of the
Affordable Care Act. But they have other
programs in their sights - one of the biggest
and most important is Social Security.
Powerful financial interests want to
transform the $2.8 trillion in interest-earning,
non-tradeable U.S. government bonds held in
the Social Security Trust Fund into a pool of
investment funds they can profitably manage
and invest in the stock market. Their strategy
is simple: convince people that Social Security
is a broken, bankrupt system saveable only by
privatization.
The truth is that Social Security is a sound
and vital social insurance system.
Candidate Trump said he would defend it.
But, President Trump appears to hold a
different position. He has surrounded himself
with people openly committed to privatizing
Social Security, including the man he chose to
head the Office of Management and Budget.
The top Republican leadership have long
sought the same end. With Republicans in
control of both the Senate and House, as well
as the presidency, Social Security is in real
danger.
B
Martin Hart-
Landsberg is a
Professor of
Economics Emeritus
at Lewis and Clark
College. Street Smart
Economics is a
periodic series written
by professors emeriti
in economics for
Street Roots.
small to cover payments to beneficiaries.
However, interest earnings on the bonds held
by the Trust Fund have been large enough to
fully pay retirees and keep the Trust Fund
growing. But, the trustees project that
beginning in 2020, the payment gap will grow
too large to be covered by interest earnings.
Bonds will have to be sold to meet beneficiary
obligations. By 2034, according to their
estimate, the Trust Fund will be exhausted,
leaving retirees with only 80 percent of their
promised benefits.
It is on the basis of this predicted outcome
that those who want to privatize the system
declare it to be in crisis and in need of radical
transformation.
The Trumped-Up Crisis
There are many reasons to dismiss this
declaration of crisis. First, the predicted
bankruptcy of Social Security depends heavily
on the assumptions used in the projection of
the economy’s movement over the next 75
years.
The report assumes, for its intermediate
forecast, historically low values for key
variables like productivity growth,
immigration, wage growth and labor force
participation. The lower the assumed values,
the more likely the system is to run short of
funds. Assume more reasonable rates and
the crisis disappears.
The role of assumptions is also important
when examining the main argument for the
privatization of Social Security. Those who
favor privatization point to the historical
performance of the stock market to argue that
returns would be higher and thus the system
more secure if it were privatized. But there is
a sleight of hand here - the conclusion that
the Social Security system will fail is based on
Social Security Basics
a future projection of historically slow growth.
The Social Security system generally works
An honest comparison would require
like this: workers and their employers each
projecting the future earnings of the stock
make yearly payments into the system.
market using the same relatively gloomy
Workers pay 6.2 percent of their wage and
assumption about growth, a comparison never
salary earnings, up to a “cap” which rises
made. And, of course, this comparison
each year based on the movement in average
ignores the considerable ups and downs of
wages. The 2016 cap was $127,200. Their
the stock market; a worker who retires during
employers pay a matching amount. The self-
a market slump could be left with little in
employed pay both shares. Social Security
retirement support.
beneficiaries receive inflation-adjusted
Moreover, there is an easy way to
monthly payments based on a formula tied to
strengthen the existing Social Security system
their or their spouses’ lifetime earnings, years
if we want to be on the safe side. As noted
of work, date of birth, and age at retirement.
above, wage and salary income is taxed up
From 1983 to the present, yearly payments
to a cap, which in 2016 was $127,200. That
into the Social Security system have been
cap means that income earned from work
greater than payouts to retirees. Past
above that level is not subject to social
surpluses and interest earnings have
security taxes. The use of a cap also
produced the current Trust Fund surplus of
means that Social Security’s financial
$2.8 trillion.
health has been weakened by rising
Every year the Social Security Board of
inequality.
Trustees issues an annual report on the
Reforms in 1983 set the cap
financial health of the system. The report
at a level that made 90 percent
includes projections of expected earnings and
of all wage and salary income
payouts over a 75 year period. Three
subject to Social Security taxes.
different outcomes, based on different
However, because of the
assumptions about the future values of key
explosion of income inequality,
economic variables, are highlighted. The
that figure has fallen to roughly 83
intermediate outcome is the one the Trustees
percent. If the cap were raised to
commonly use to assess the stability of the
restore the 90 percent figure, the
system, but even this outcome is based on
shortfall projected by the trustees
very conservative assumptions about future
would likely disappear.
growth.
If we made all wage and salary
Since 2010, worker and employer yearly
income subject to the tax, the system
contributions into the system have been too
would be solvent until the year 2067!
The Importance of Social Security
The average Social Security retirement
benefit is approximately $1350 a month or a
bit over $16,000 a year. It replaces about 39
percent of past earnings for a person who
worked their entire adult life for average
earnings. That percentage places the US
near the bottom among developed countries.
And yet, millions of people count on Social
Security for their survival. Over 60 percent
of seniors rely on Social Security payments
for at least half their income. Approximately
one third of seniors rely on Social Security
payments for at least 90 percent of their
income.
Not surprisingly, a strong majority of
Americans support doing whatever it takes to
ensure Social Security’s future. A 2014
survey sponsored by the National Academy of
Social Insurance found that 86 percent of
those polled believed that “current Social
Security benefits do not provide enough
income for retirees,” 72 percent favored
“raising future Social Security benefits in
order to provide a more secure retirement for
working Americans,” and 83 percent agreed
that “it is critical to preserve Social Security
benefits for future generations, even if it
means increasing taxes paid by top earners.”
In sum, Social Security is not in crisis. It is
a strong program and, if necessary, a simple
reform can ensure its continuing smooth
operation for the foreseeable future. In fact,
two bills have recently been introduced to do
just that. The Social Security Expansion Act
and the Social Security 2011 Act both include
new taxes on high-income earners, higher
minimum benefit levels, and use of a new
senior oriented consumer price index for
calculating yearly benefit increases. The
Social Security Expansion Act is projected to
extend the system’s solvency by 60 years; the
Social Security 2011 Act by 75 years.
What does need our attention is the
broader workings of our economy. Among
the most pressing issues is the disappearance
of secure, well-paying jobs. In fact, a growing
number of analysts worry that the labor
market has become so bad for workers that
we may be facing the end of retirement; low
pay and the lack of benefits will force people
to work until they literally drop. That we have
come to this point is the real crisis.