7.14.2014
The Future of Social Security
The Social Security Administration took in $121 billion more than it spent on Social Security benefits in 2009. By 2015 the surplus is expected to turn into a deficit. There’s been a lot of talk in our government about Social Security reform. There are quite a few options here, but if one thing is clear is that we need to continue to fund Social Security so all working Americans can have a decent retirement and not have to live in poverty in their old age. There is $2.6 trillion in the Social Security trust fund over and above the tax revenue that Social Security receives on a regular basis to pay benefits (note: this is not held in cash or any reasonable form thereof. Any real money has been long since sucked out of Social Security by politicians and spend as they see fit. The money is owed to Social Security by the U.S. Government and is part of our national debt.). When the cost of benefits exceed the revenues (i.e. taxes), Social Security will begin paying benefits from the trust fund. If Social Security taxes remain at the same rates that they are at now then the trust fund is expected to be exhausted by 2037. At this point taxes to pay benefits will only cover about 78% of social security benefits. By 2084 it will cover about 75% of benefits.
The Congressional Budget Office projected in 2010 that an increase in payroll taxes ranging from 1.6%–2.1% of the payroll tax base, equivalent to 0.6%–0.8% of GDP, would be necessary to put the Social Security program in fiscal balance for the next 75 years. It sounds like we need to raise about 2% more money, or, if it is 0.8% of the GDP, about $150 billion a year. Ok, we can do that. If we can give out a trillion dollars in stimulus money, or spend two trillion dollars fighting an unnecessary war in Iraq, then allowing an additional $130 billion a year to insure the retirement of all hard working Americans should not be that big an issue. Yes, I realize that this country is $17 trillion dollars in the hole, and yes I know we are currently spending over a trillion a year more than we take in, but there are other ways to solve our budget issues. It seems to me that this is something that this country should be able to figure out.
We need to find a way to fund Social Security. So what are our options? An obvious option is to raise taxes by 2%. This would mean an additional $20 in taxes on a salary of $1,000 a week, or $1,040 a year. That seems affordable enough to guarantee a decent retirement. Another is to get more Americans working and making a higher wage to increase all taxes including those paid to Social Security. Yet another is to extend the income cap so wealthier Americans pay income tax on a larger percentage of their wages. Right now Social Security taxes are only taken out of your wages up to about $106,000. If we were to extend Social Security tax throughout the entire income range of all Americans the Social Security would be fully funded. Another source of income is uncollected taxes. The IRS estimates that every year approximately $350 billion in taxes go uncollected, mostly due to unreported income. That alone is twice what is needed to fund social security. There are actually any number of ways that the Social Security system can be funded and hard-working Americans can have a decent retirement. I think that the best solution is a combination of extending the Social Security tax throughout the entire income range with a decreasing tax rate above the existing income cap of $106,000. Combine this with a small overall tax increase of say 0.5 % (thats $5.00 a week out of a $1,000 a week salary), and balance both to get to the amount needed to fully fund Social Security.
It seems that the Republicans are continually attempting to privatize Social Security. This is absolutely absurd and would create a nightmare for working Americans. There are a variety of reasons that this strategy will not work. One of the most obvious is that most people lose money when they do their own investing, and a lot of money managers don’t do much better. Can you imagine the fiasco of tens of millions of Americans with little or no investment experience trying to manage their retirement accounts. Certainly distributing this money to future Social Security recipients would have a positive effect on the stock market and other investments with more money flowing into all investments, but the eventual effect would be a transfer of wealth from those without investing experience to those that know how to manipulate the investment system (ie: from the working man to the Wall Street investment bankers). This has the potential to leave millions of Americans with little or no means of support in their old age.
Can you imagine the Bernie Madoff’s and Ivan Boesky’s that will emerge with billions more dollars every year in the hands of inexperienced investors. The SEC has a difficult time safeguarding the markets now, can you imagine the ripoffs and Ponzi schemes that will be going on with that much more capital in the hands of the financially unsophisticated.
The unfortunate eventual outcome of Social Security privatization will be that, a generation from now, we could have tens of millions of elderly Americans with little or no money to retire on and no provision to help them. What are we going to be able to do for these fellow Americans? What will it cost to care for people who’ve lost everything or were unable to prepare for retirement? While Social Security was never intended to be a complete retirement fund, it was intended to supplement retirement income when we are too old to work. Yet for many elderly Americans it is their primary means of support in old age. Privatizing Social Security puts that in jeopardy. Surely the Republicans must realize what a bad idea it is to try to privatize this resource that is so essential to many seniors .
Obviously our elected officials need to put aside their differences and solve the issues facing Social Security. The need is too great to ignore it any longer.