NJFAC Social Security Packet and Links

Social Security links
What Is Social Security?
What Really Supports the Elderly?
Social Security: What’s in It for Younger People?
Una Prueba: ¿Que Le Ofrece El Seguro Social A Las Personas Jovenes?
Packet Summary–English [Below–August 2019]; Español [August 2001]

A Social Security Packet: Summary and Update [rev. 8/19]

The numbers in the articles above are outdated, but the arguments are not.

A Social Security Packet: Summary and Update [rev. 9/19] Español [August 2001]

Social Security, the government program that has extended modest security to generations of Americans of all ages, is under attack. Unable to destroy a successful and popular program directly, conservatives, who have fought it since its inception in 1935, tried unsuccessfully to privatize it during the Bush Administration. Now they make the false claim that it is financially unsustainable.  Many liberals agree with them, that a crisis is inevitable without changes that reduce benefits. This argument, which began during the Clinton era, has accelerated as government deficits rose as a result of a number of factors other than Social Security: high unemployment following the fiscal crisis, stagnant wages and rising inequality for decades, with consequent impact on revenues, a bloated military budget, the Bush-era [and now Trump-era] tax cuts, and a mostly private medical care system that is largely publicly funded, one far more expensive than those of other industrial countries.  Whereas heretofore benefits were entirely financed from annual SS taxes, since 2010, beneficiaries have been paid in small part from the yearly interest on the Trust Fund,[1] which means that Social Security, rather than helping to fund the deficit, adds[2] to it in a very modest way. To accuse Social Security of adding to the deficit is like accusing individual holders of Treasury securities who want to redeem them. The final blow was the use of Trust Fund assets for the first time in 2018. However, that was exactly the purpose of building up these assets.

The articles in this packet show that Social Security is financially sound, requiring only modest adjustment. Even this would be unnecessary with adequate wage and output growth and less inequality. The program serves a far larger population than retirees, including many disabled persons and the families of retired and deceased and disabled persons. Any changes made in Social Security should expand its protections, especially as private pensions wither and workers have negligible retirement savings.[3]

The articles:

  • Expose the phony Social Security “crisis” by showing that Social Security is fiscally sound with  minor adjustment, able to support a growing elderly population, is not a source of the deficit, and that the Trust Fund[4] is safe.
  • Show how Social Security benefits the entire U. S. population, reduces poverty, and is especially important not only to the elderly but also to children as well as to women, minorities and other lower-wage workers, and young workers, who increasingly lack adequate retirement assets.
  • Explain why reducing Social Security for future retirees is not only unjust and unwise, but is unnecessary.

Point out how Social Security can both remain fiscally secure and be strengthened. There Is No Social Security “Crisis”

Most reports on Social Security treat projections by that system’s actuaries as fact rather than best estimates. Then the projected Fund exhaustion in 2035 [2019 Trustees Report[5]] is taken to require immediate action to reduce benefits, raise the retirement age or, less often, raise SS taxes.

How are these projections derived? Social Security actuaries make three sets of estimates, called “intermediate,” “low-cost” and “high-cost,” with the intermediate used as the basis for best estimate of Fund exhaustion. Each of these projections must make multiple assumptions: about wage growth, unemployment, interest rates, prices, mortality, immigration, and other economic and social variables.

For example, the intermediate projections are based on assumptions which, compared to low-cost projections, will lead to Fund exhaustion at an earlier year. These more conservative assumptions would include slower economic growth, higher unemployment rates, slower wage increases, slower immigration, and lower mortality rates.

Under these intermediate assumptions, which the Trustees report to the public every year, the Fund is slated to be able to pay all expenses until 2035. Even after the Fund is exhausted, payroll tax collections would be sufficient to pay recipients 80% of the higher benefits due in 2035, and 75% of 2093 benefits.[6]

Using the “low-cost” projection of the 2019 Social Security Trustees Report in constant [year of report] prices,   the Fund will never run out. It is projected to fall to a minimum of $2.3 trillion in 2040, then rise continuously to $16.6 trillion in 2095.[7]

The “low-cost” assumptions of output growth are closer to our historical experience than those of the “intermediate” projections. [Our actual growth rates over recent decades exceed the low-cost assumptions. For example, the low-cost projections of the 2019 Report assume the economy will grow at a rate between from 2.5 to 2.8% over the period 2035 to 2095. Despite serious recessions, we experienced actual average growth of 3.05% between 1979 [the last year before the 1980 recession] and 2018.[8] Compare this to the intermediate projection of 2.0 to 2.1% over the period 2035 to 2095.

The Trust Fund grows when Social Security’s income—payroll taxes and interest on Social Security bonds—exceeds the total costs of paying beneficiaries. The case for immediate action is undermined by the impossibility of prepaying future benefits. [See below on Trust Fund.]

Including interest on the Trust Fund, Social Security has been billions in surplus for decades, even during the financial crisis.[9] By 2018, Social Security taxes and interest were no longer sufficient to pay all costs and the Trust Fund was tapped.  This was a change predicted to create political problems, as revenues were needed to redeem Trust Fund bonds. Remember that the Fund was created for that purpose, and Social Security taxes are paid by all workers, including those too poor to pay income taxes,

SS works best as a pay-as-you-go program. Social Security surpluses must be spent, or they will become an economic drag, so they have, for example, funded tax cuts. The needs of the future cannot be funded by taxes now; these needs must be satisfied with the workers, machines, and technology available then. Our economy can only prepare for the future now by investing in these resources to raise future output. Piling up monetary surpluses can’t meet future needs. [See “What Really Supports the Elderly?] Better to meet its current funding needs by raising the income cap on the payroll tax[10] or adding to the deficit by using general revenues.

Former Fed Chairman Alan Greenspan agrees:

“[Congressman Paul] Ryan asked [then-Fed Chairman Alan] Greenspan if there was a way to ensure the solvency of Social Security through the use of personal retirement accounts. Greenspan’s response was eye-opening. He told Ryan, “There’s nothing to prevent the federal government from creating as much money as it wants and paying it to someone.” He goes on to add that the real question is whether there is a system in place to ensure that the real assets are there for the benefits (money) to purchase.”  Watch the exchange here.

There Is No Demographic “Crisis”

There is no demographic problem with Social Security. Those who insist there is one make what seems an obvious connection between the falling number of workers to retirees and “inevitable” Social Security shortfalls. However, compared to times when there were many more workers per retiree, say 1960, it takes fewer farmers to grow a bushel of wheat; fewer bakers to bake our bread; fewer mechanics to make a car, and fewer technicians to build a computer. Result? Fewer workers needed to support a retiree. Were this not true, a poor country like Bangladesh, with many workers and few retirees would be far better able to support its retirees than a rich country like the US.

The ability of a country to support the population who are not of working age–the young and the elderly–depends on its productive capacity as well as the size of this dependent population. In 1960, when the United States was shouldering the responsibility for both the baby boomers and the elderly, its Gross Domestic Product (GDP) per capita was only 33% of what it was in 2017, adjusted for inflation. At the time of projected crisis, this nation should be even wealthier, if we attend to our real resources.

We are wealthier because our workers, made more productive by their education, tools and better health, produce more. It is not merely numbers of workers per dependent that count. It is productivity–the output that each worker can produce–that determines our prosperity. It is absurd to think that a nation as rich as the United States cannot provide security to all.

Rising productivity also permits higher wages on which taxes are levied to fund SS benefits. The policies of the last few decades do put SS at risk–the lag in productive investments at home that improve our means of production; the political failure to insist on policies that ensure that higher wages follow productivity improvements; and rising inequality.  Both wage stagnation and inequality limit the wages subject to Social Security taxes.

The Social Security Trust Fund Is Safe

Many conservatives warn future beneficiaries that “there is no Trust Fund; just IOU’s” [as former President Bush said at the Bureau of the Public Debt], implying that the government might renege on its debt. Yet government IOU’s, held by the Chinese and other governments, foreign corporations, and foreign investors are funding our enormous trade deficit. Our banks, corporations, and individuals own them, too. Would we wish to convey to these bond holders that our government is an unreliable debtor? The government has never defaulted–why should it just for the Trust Fund bonds?

Social Security Benefits and Protects the Entire Population [see Facts about Social Security 2019, and Social Security Is Not Just for Seniors 2000.]

  • Social Security benefits all age groups–young workers who have insurance for death and disability during all of their working years, retired workers, disabled workers and their dependents, and the survivors of deceased workers. Nineteen million Social Security beneficiaries [2017] are not retired workers they are workers with disabilities, children of retired, disabled, and deceased workers, spouses, and care-taking parents.  Children get more benefits from Social Security than from any other federal program. Before Social Security, the groups that are now covered–working men and women, seniors, widows, orphans, and disabled persons–had neither insurance nor savings. Those were the days of social insecurity, and of the Poor House.[11] Social Security protects the elderly at all income levels, and for the majority, it is their principal income. “Social Security provides the majority of income to most elderly Americans. For about half of seniors, it provides at least 50 percent of their income, and for about 1 in 5 seniors, it provides at least 90 percent of income…”[12] Unlike most pensions, it is inflation-adjusted, and unlike 401k’s, it lasts for the retirees’ lifetime. Social Security relieves adult children of much of the financial strain of supporting their aging parents and gives parents the dignity of an assured income of their own.
  • Social Security Prevents Poverty In 1959, when poverty measures began, 35% of Americans 65 and over were living below the official poverty level. Seniors were then the poorest age group in the population. Thanks largely to Social Security, the elderly are now the age group with the lowest poverty rate [about 9% in 2017]. Of course these poverty standards for all groups have lagged behind changes in the standard of living.
  • Without Social Security, 52 percent of African-American seniors instead of the current 19% [2017]] would be poor. Latinos are similarly dependent on Social Security: in 2017, 17% of Latino seniors were poor; without Social Security, 46% would have bee.n poor Counting all those families receiving disability or survivors’ benefits, along with retirees, Social Security Keeps 22 Million Americans Out of Poverty.

Social Security Benefits Women, Minorities and other Low-Wage Workers disproportionately [See “Women and Social Security”, and “Social Security and Minorities”]

  • Because they face discrimination and often lack health care and other resources, groups such as African Americans have lower life expectancies than other groups. Minority workers have higher rates of disability owing to more risky jobs and less access to health care. Consequently, they are more likely to depend on disability and survivor benefits than more privileged groups.[13]
  • Women, minorities, and other lower-wage workers who are less likely to have private pensions or assets depend more heavily on Social Security than higher-income workers. In fact, higher-wage workers, too, are increasingly likely to be without employer-financed pensions, so Social Security is becoming even more important for them as well.
  • Lower-income workers benefit from Social Security’s progressive benefit formula which replaces larger proportions of their former earnings than is the case with higher-income workers.

The Continuing Threat to Social Security

In 2010, President Barack Obama appointed a commission to study the deficit. The Chairs of the National Commission on Fiscal Responsibility and Reform [the Deficit Commission] proposed remedies to the Federal deficit that include raising the retirement age and cutting benefits for all but the poor. Obama’s Transition team Social Security advisers have asked whether the Commission is “a Social Security death panel.[14]  The recent Trump Administration tax cuts and resulting deficit expansion have revived alarm about Social Security.[15]

Strengthening Social Security

Increasing public investment to maintain and increase productive capabilities, guaranteeing that all who want a job can have one, and ensuring that wages regain and surpass earlier peaks, will provide a strong economic foundation for financing Social Security and other social programs. Wage lag has reduced taxes that would otherwise be paid to the Trust Fund.

Jobs for All at living wages is the best economic insurance for Social Security because it means more people make higher contributions to the trust funds and fewer people collect benefits. This is the basis for tapping the financial resources of the productive economy described above.

This is the proposal of the National Jobs for All Network (formerly Coalition)–to bring together workers needing good jobs with our unmet social needs. This is the basis for a strong, productive economy which would serve our needs and permit more generous Social Security benefits in response to the diminishing provision of private pensions. Rising inequality has put more income beyond the maximum income at which Social Security  taxes are paid and enlarged the fraction of income received as interest, profits and capital gains, which are not taxed at all. These have also restricted Trust Fund revenues.[16]

It is time to increase Social Security, especially for the poorest workers.  Past eras of “reform” have led to Social Security cuts: the age of eligibility for full benefits has gradually increased.  It will be 67 for workers who will reach 62 after 2022. This change is equivalent to approximately a 12 percent cut in benefits for these workers. Further cuts took the form of reduced inflation adjustments. Consequently, after 20 years of retirement, the benefits of a typical retiree will be reduced by about 10 percent.[17]

In addition to proposals that enhance the economic foundation for Social Security, we need the political will to use our abundant resources for the national social and economic welfare.

Prepared by Social Security Task Force: Robb Burlage, Eleanor Kremen, Helen Lachs Ginsburg, Laura Piil, June Zaccone, Editor, Gertrude Schaffner Goldberg, Chair, July 18, 2001
Revision and update August 2019 by June Zaccone. Thanks to Trudy Goldberg and Helen Ginsburg for their comments.

© The National Jobs for All Network

[1] https://www.ssa.gov/OACT/TR/2019/VI_A_cyoper_hist.html#282924

[2]When interest on the Social Security bonds is paid, unless the budget is in balance, borrowing must rise by the amount of the interest.

[3] Fewer than half of private sector workers are covered by an employment-based retirement plan, even one to which they contribute. And four of five workers have less than a year’s income in those accounts. https://www.nirsonline.org/2018/09/new-report-finds-nations-retirement-crisis-persists-despite-economic-recovery/

[4]Fund revenues come from payroll taxes on employees, their employers, and the earnings of the self-employed, and expenses and payments to SS recipients usually come from payroll taxes. The excess of revenues over payments is accumulated in the Fund, in the form of special Treasury bonds, and can be tapped if a year’s payroll taxes are insufficient to pay recipients.

[5]2019 SS Trustees Report, p.3. It is useful to remember that these reports are somewhat political: this year, the two Public Trustee posts are vacant. Other Trustees are the Secretary of the Treasury, the  Secretary of Labor, the Secretary of Health and Human Services, and the Acting Commissioner of Social Security, all Presidential appointees.

[6] 2019 Annual Report of the Trustees, p.11.

[7]Table VI.G.7, http://www.socialsecurity.gov/OACT/TR/

[8]A geometric mean of yearly price-adjusted growth data was calculated from GDP growth rate data at https://www.bea.gov/national/xls/gdpchg.xls

[9]See historical data, Social Security Trustees Report, 2014, Table IV.A3.]

[10] For 2019, the maximum taxable earnings is only $132,900. https://www.ssa.gov/planners/maxtax.html

[11] https://www.britannica.com/topic/almshouse

[12] https://www.cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security

[13] About 36 percent of young men and 30 percent of young women who were 20 in 2018 will die or become disabled before they reach the retirement age of 67, according to the Social Security actuaries. https://www.ssa.gov/OACT/NOTES/ran6/an2018-6.pdf  Social Security’s life and disability insurance protects against the worst poverty for their families. “For a young worker with average earnings, a spouse, and two children, that’s equivalent to a life insurance policy with a face value of over $725,000 in 2018, according to Social Security’s actuaries.” https://www.cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security

[14] As mentioned before, the deficit results from continuing joblessness, a military budget approximating those of the rest of the world combined, and the Bush tax cuts. These are still not adequately addressed, though the deficit has fallen as the economy slowly expands again. The Administration appointed the two co-chairs: former Wyoming Republican Senator Alan Simpson, and Erskine Bowles. Simpson described seniors writing to him about Social Security as “These old cats 70 and 80 years old ….who live in gated communities and drive their Lexus to the Perkins restaurant to get the AARP discount.” Bowles, who is a director of Morgan Stanley, a Wall Street bank saved by the taxpayer bailout, says, “We’re going to mess with Medicare, Medicaid and Social Security because if you take those off the table, you can’t get there.” As Clinton’s Chief of Staff, he “cut a deal with Newt Gingrich that would have partially privatized Social Security in the 1990’s if the Monica Lewinsky scandal hadn’t derailed their plans.” Eleven of the 18 Deficit Commission members are known supporters of privatization.

[15] “An annual government report on the status of the programs painted a dire portrait of their solvency that will saddle the United States with more debt at a time when the economy is starting to cool and taxes have just been cut.” https://www.nytimes.com/2019/04/22/us/politics/social-security-medicare-insolvency.html “A slow-moving crisis is approaching for Social Security, threatening to undermine a central pillar in the retirement of tens of millions of Americans.” https://www.nytimes.com/2019/06/12/business/social-security-shortfall-2020.html

[16] “This upward redistribution is important to Social Security for two reasons. First, it has shifted a large amount of wage income to workers earning above the cap. The share of wage income that has escaped taxation in this way rose from 10 percent in 1983 to 18 percent in recent years. Similarly, the shift from wage income to profits in the last 14 years has also deprived the system of revenue. The other reason this shift is important is that it has kept wages from growing in step with productivity. If the typical worker’s wages had risen in step with productivity since 1980 they would be more than 30 percent higher today.” Dean Baker, Beat the Press blog, Sept 2014….” if policymakers had maintained Social Security’s payroll tax after 1983 so that it continued to cover 90 percent of earnings—instead of letting its coverage shrink to less than 83 percent as inequality has risen—the combined retirement and disability trust funds would have been larger by more than $1.3 trillion by the end of 2016.” [In 2016, fund assets were $2.8 trillion.] https://www.americanprogress.org/issues/poverty/news/2018/02/15/446672/rising-inequality-threatening-health-social-security/

[17] http://cepr.net/blogs/cepr-blog/time-to-increase-social-security-benefits-for-low-and-moderate-wage-earners