Social Security – An Honest Evaluation

In my last post entitled "The Truth is a Sometime Thing? (Discussion)" I moved from a focus of misinformation, resulting from outright lies in many cases, on the part of the Right, to the misleading, destructive and naïve opposition to all changes in the benefits provided under Social Security, Medicare and Medicaid. Yet the three programs are financed so differently from each other, have such different benefit programs, and have such different financing problems, that a discussion of the three does not lend itself to clarity.

Instead let me start by defining the three programs. Social Security is often thought of as a retirement program that only benefits those over 67. It is in fact a program that covers a large group of benefits, but for purposes of our discussion we need to focus on what is the main part of the program that is often referred to under the acronym OASDI, which stands for Old Age, Survivors, and Disability Insurance or RSDI, which stands for Retirement, Survivors, and Disability Insurance.

It is this program that I want to address today.

First some background. The Social Security Trust Fund has not been stolen for other purposes. It is intact and is invested in government securities, the safest in the world. The confusion about the fund derives from the fact that during the Johnson Administration (1968) the “unified budget” was enacted. The official purpose of the Act “was an effort to rationalize what the Commission viewed as a confusing budget presentation.” I have always thought, and continue to think that it was intended to hide the huge deficits that Johnson was incurring in simultaneously fighting the Vietnam war and pursuing the “Great Society”. At that time the Social Security Trust fund was running very substantial surpluses, and so including the Trust fund as part of the unified budget masked the size of the deficit. However, in 2010 expenditures, for the first time, exceeded income from the payroll tax, and will do so hereafter. See here. 

Nevertheless, the combined trust funds will continue to grow because projected interest earnings of $115 billion substantially exceed the non-interest income deficit. Beginning in 2023, however, net redemptions of trust fund assets with General Fund payments will be required, until its assets are exhausted in 2036. After trust fund exhaustion, continuing tax income will be sufficient to pay 77 percent of scheduled benefits in 2036 and 74 percent in 2085. Ibid.

But that means that even without any changes full payments of Social Security benefits would be paid to all those who are now 44 years old or older, which is better than the guarantee offered by the Ryan budget by one year, and unlike the Ryan budget benefits at a reduced rate would continue to be paid.

However I don’t believe that is good enough. We need to make sufficient changes so that people who are now 24 years old and are paying into the trust fund for the benefit of older generations are guaranteed full benefits. If we don’t do that, these younger generations will see little reason to support the system, and it will be doomed much earlier, simply because young people will insist that they not pay into a system from which they will not draw the full benefits of older generations.

What should we do?

Gail Collins writing in the New York Times posits:

The basic answer to fixing the long-term Social Security imbalance is just to eliminate the payroll tax cap, which currently exempts all income over $110,100 a year. Do that, and you have solved the problem. Politically speaking, you would probably have to agree to mix a limited tax increase with one of the fixes desired by fiscal conservatives, like reducing benefits for the wealthy, or changing the cost-of-living adjustment or, yeah, raising the retirement age a little. But the main answer is that cap, and anybody who refuses to even discuss the payroll tax cap is not serious about fixing Social Security.

She is right in every respect except one crucial one: Republicans are not serious about fixing Social Security. They are committed on the one hand to abolishing what they call “the Nanny State” and on the other to the proposition that under no circumstances must taxes ever be raised, and even that any “reform” of the tax system must never result in an increase in revenues. This even extends to enforcement of the tax laws. As recently as October of 2011 “The House Appropriations Committee … passed legislation cutting the IRS budget by $600 million, providing the IRS with $11.5 billion in fiscal year 2012. The Senate Appropriations Committee was more generous, providing $11.7 billion for the IRS, but both amounts would be far below what the IRS was given last year.” See here.

Furthermore the IRS enforcement arm falls under the rubric “discretionary spending” and is subject to spending caps under the Budget Control Act conceived as part of the 2011 debt ceiling deal. The Administration is asking that current caps placed on the IRS enforcement budget be lifted and that this enforcement budget not compete with other national priorities for funding.” See here. In making this request it was pointed out that: “The latest IRS tax gap report (January 2012) showed that American taxpayers under reported their taxes to the tune of $450 billion dollars in 2006;” Ibid. See also here.

If those $450 billion dollars were to be collected over the next ten years it would amount to $4.5 trillion, enough to substantially wipe out the deficit and put SS on a sustained basis. But it ain’t going to happen. Nor will Congress allow the cap on SS payroll taxes be raised, unless Obama were to win the election by a landslide so large as to bring with him a House with a substantial majority and a Senate with a majority above 60, so as to be filibuster proof. It ain’t going to happen, particularly since in the November election “Democrats will defend 23 seats, while Republicans will defend 10." See here.

The bottom line to all this is that Gail Collins recommendation is fine as a matter of policy, it is not politically feasible.

Which means - I hate say it – Social Security will have to be saved without raising the cap, or in other words, by cutting benefits sufficiently to make it viable well into the future. To do otherwise is to hold ones breath till Republicans give in – they don’t care. So we do nothing or we do what Republicans will allow, or as Gail Collins says:

...like reducing benefits for the wealthy, or changing the cost-of-living adjustment or, yeah, raising the retirement age a little.

And adding to that the following possibilities set out by the Social Securities Administration, revising the benefit formula, revising the benefit and contribution base, extending OASDI program coverage, and/or Changing the investment requirements for the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds.

And if the President can maneuver some increase in revenue, great, but (and this is essential) we must have his back. He must not have to worry about the support of his liberal wing.

The point I am making is the choices are stark. Nothing will happen unless Republicans allow it. The President needs room to maneuver. Liberals have attacked him when he tries to be practical. Unless they accept what must be accepted, Social Security (and Medicare and Medicaid) will die. Half a loaf is better than none, etc.

It is an unpleasant reality! But it is reality! Until such a day as the American people wake up to the fact that Republicans are not the friend of ordinary people, they can block all real reforms. To save something, we must have the wisdom to not allow the best to be the enemy of the “good.” The alternative could be the worst, i.e. the Republican plan that would end the safety net, or at the very least shred it to the point were it no longer serves its purpose. It doesn’t matter whether it is Santorum, or Gingrich, or Romney, on this point they are all on the same page. Time is running out.

Addendum: I can’t help noting that Newt Gingrich, in his Georgia victory speech once again attacked Obama for the rising gas prices saying they have doubled on the President’s watch. I found that startling and so I checked the facts and found the following graph here.

The reader should note that in 2008, near the end of the Bush Presidency gas prices were higher than the are now. They then dropped precipitously at the beginning of 2009, just as Obama took office, as a result of the recession, which lowered demand. As the economy recovered the price went back up, so that now it is almost as high as it was before the recession. See this Washington Post piece for an analysis of the facts.

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