July 12, 2011.
Social Security, Rhetoric, and Hurtful Hyperbole.
We have a lot of big problems to solve in the United States and we should do so quickly. Social Security is not one of the big problems; a slight adjustment will preserve it for several generations. The single immediate concern is ensuring Social Security benefit payments are not disrupted.
Prior to enactment of the Social Security Act in 1935, people were left to their own devices when they could no longer work. The Act created an insurance program that workers paid into over their working lives receiving benefits at the end of their working careers. Employers matched the workers’ “premiums” and all contributions were deposited into the Social Security Trust Fund. In turn the trust fund paid benefits to workers and invested surplus money. Social Security programs have expanded well beyond the simple beginnings, but the core program remains fully funded through about 2037 (and at the 75% level for decades after that).
The Social Security Trust Fund has a surplus of money. The only reason it is an issue today is that the Treasury has borrowed over two trillion dollars from the trust fund (“Introduction: Federal Debt”) and the borrowed monies are needed for social security benefit payments as soon as August 2011. The money needed to pay social security benefits are the principle and interest on special security instruments issued by the Treasury when the money was borrowed. President Obama’s statement on July 12 that failure to raise the debt ceiling would cause the August 3rd social security checks to be delayed is really saying the Treasury will default on the special security instruments. Once and when those special security instruments are paid, Social Security is fully funded through 2037 from its own trust fund. For those who rely on social security benefits distinction in the reason for a delay is without a difference. Our first priority must be the payment of those benefits. However, the real issues are ensuring repayment of the borrowed trust funds doing something now that will ensure the viability of Social Security after 2037.
In 1983, Ronald Reagan signed amendments to the Social Security Act that included extending the retirement age. He said: “The changes in this legislation will allow Social Security to age as gracefully as all of us hope to do ourselves, without becoming an overwhelming burden on generations still to come” (Epstein). Those born in 1960 or later will be eligible for full retirement at age 67.
One option examined by the Congressional Budget Office (CBO), as it explored options to keep the Social Security viable, was to tax the full amount of an individual’s earnings. Today, no withholding is made for Social Security on individual earnings above $106,800.00. The CBO determined by taking this option and not increasing benefits based on the additional withholding:
. . . would improve the 75-year actuarial balance by 0.9 percentage points of GDP and would extend the trust fund exhaustion date beyond the 75-year projection period . As a result, payable benefits would be higher from 2039 onward, especially for people born later (Meyerson).
This would bring Social Security withholding from earnings in line with Medicare which does not have a ceiling on withholding.
This simple adjustment, withholding without a ceiling, along with repayment of the special security certificates will push Social Security out of the spotlight for the next several election cycles. We can assure our grandparents and parents they needn’t listen to the hyperbole of the politicians for several election cycles and be assured the benefits they have expected will be there when they are needed.
Introduction: Federal Debt. March 2011. 29 April 2011 <www.fms.treas.gov/bulletin/index.html>.
Lita Epstein, MBA. The Complete Idiot’s Guide to Social Security and Medicare, Second Edition. Penguin Group, 2006.
Noah Meyerson, Charles Pineles-Mark, and Michael Simpson. “Social Security Policy Options.” A CBO Study. 2010.