Social Security Packet

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What Is Social Security?
What Really Supports the Elderly?

A Social Security Packet: Summary and Update [rev. 11/14]

Packet Introduction — English [September 2014] — see below; 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. 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 and consequent decline in revenues, a bloated military budget, the Bush-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. Surprisingly, many liberals, perhaps misinformed of the actual condition of Social Security, now believe that a crisis is inevitable unless changes are made that will one way or another reduce benefits and living standards.

The articles in this packet show that Social Security is financially sound without any changes whatsoever, that it serves a far larger population than only retirees, including many disabled persons and the families of retired and deceased and disabled persons. And any changes made in Social Security should expand its protections, especially as private pensions wither. [1]

The articles:

  • Expose the phony Social Security “crisis” by showing that Social Security is fiscally sound, able to support a growing elderly population, is not a source of the deficit, and that the Trust Fund is safe. [Fund revenues come from payroll taxes on employees, their employers, and the earnings of the self-employed, and expenses and payments to SS recipients come out of the Fund. 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.]
  • 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.
  • 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”: Social Security Is Fiscally Sound

Many reports on the Social Security Trust Fund treat projections by that system’s actuaries as fact rather than the best estimates that can be made at the time. The projected Fund exhaustion in 2033 [2014 SS Trustees Report,p.3] then is taken to require immediate action to raise SS taxes or reduce benefits.

How are these projections derived? The Trust Fund 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. 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, 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 2033. Even after the Fund is exhausted, payroll tax collections would be sufficient to pay recipients 77% of the higher benefits due then, according to the Trustees [See 2014 Annual Report of the Trustees, p.11]. By contrast, problems of climate change are here already, but far less discussed and planned for by the Congress.

The highly variable projections of the Trust Fund undermine the case for immediate action. The projections below are based on the yearly Social Security Trustees Reports. They use the “low-cost” projections because these include assumptions of output growth which are closer to our historical experience than those of the “intermediate” projections. [Even so, our actual growth rates over decades exceed the low-cost assumptions. For example, the low-cost projections of the 2014 Report assume the economy will grow at a rate of 2.85% over the period 2014 to 2090. We experienced average growth of 3.10% between 1960 and 2013.]

The following projections are from Trustee Reports for 2011, 2012, 2013, and 2014, all in constant [year of report] prices.

  • 2011 Report: the Trust Fund is projected to be $17.5 trillion in 2085 and rising;
  • 2012: the Fund is $1.2 trillion in 2090; declining after 2025, then rising again from 2075;
  • 2013: the Fund is depleted by 2068;
  • 2014: the Fund is $6.4 trillion in 2090, and rising.

In each year’s projections, except for 2013, the Trust Fund is rising because each year, Social Security’s income exceeds the total costs of paying beneficiaries. In 2090, for example, the Trust Fund, at $6.4 trillion, is enough by itself to pay all costs in that year [$5.7 trillion].

Because the Trustees Reports have the highly variable predictions shown above, it seems unwise to base current policy on such variable estimates, especially at a time when the majority of people are still suffering from the continued effects of the fiscal crisis. Rather, it seems best to leave Social Security unchanged. SS has been billions in surplus, including interest on the Trust Fund, even during the crisis. [See Table IV.A3.] If, in the unlikely event its usual yearly surpluses are no longer generated, then will be the time to increase taxes. Its funding needs can then be easily met by raising the income cap on the payroll tax.

Further, SS works best as a pay-as-you-go program: the needs of the future cannot be funded by taxes now. The necessities of the future must be produced then with the workers, machines, and technology available then. What our economy should do now to prepare for the future is to invest in these resources, so that we can meet the needs of people in the future. Piling up monetary surpluses can’t meet future needs. [See “What Really Supports the Elderly?]

There Is No Demographic “Crisis” [See Social Security Is Not In Crisis]

There is absolutely no demographic problem with Social Security. Those who insist there is one make what is to them 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 35% of what it was in 2013, adjusted for inflation. At the time when the “crisis” crowd says we’ll have too many dependents to take care of, this nation should be much wealthier than we were during that earlier period of high dependency.

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. Moreover, the baby boomers and the elderly combined were larger in proportion to the working-age population than the comparable group will be later in this century. 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 aid in ensuring that higher wages follow productivity improvements; and rising inequality, which limits the wages subject to SS 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. 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 2014, Social Security Is Not Just for Seniors and Quiz:What’s in it for Younger People?

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. Twenty million Social Security beneficiaries [2013] 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 [p.4] 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.
  • Social Security protects the elderly at all income levels, and for all but roughly the wealthiest one-third of seniors, it is their principal income. Unlike most pensions, it is inflation-adjusted, and unlike 401k’s, it lasts for the retiree’s 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

Without Social Security, about 44% of all seniors [2012] would be living below the government’s official poverty level rather than the actual 9%.

  • 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 2012]. Of course these poverty standards for all groups have lagged behind changes in the standard of living.

Social Security Benefits Women, Minorities and other Low-Wage Workers [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. Consequently, they are more likely than less-disadvantaged groups to need Disability and Survivors’ benefits.
  • 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 will become even more important for them as well.
  • Owing to more risky jobs, less access to health care, discrimination, and poverty, lower-income and minority workers have higher rates of disability. Consequently, they are more likely to depend on disability benefits than more privileged groups.[2]
  • 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 called the Commission “a Social Security death panel,”  [3] Nonetheless, the recommendations of the Deficit Commission are still popular among some officials as a basis for cutting the deficit.

Strengthening Social Security

Increasing public investment to maintain and increase productive capabilties, ensuring 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. In short, this is the proposal of the National Jobs for All 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, which has put more income beyond the maximum at which SS taxes are paid and enlarged the fraction of income received as interest, profits and capital gains, which are not taxed at all, has also restricted Trust Fund revenues.[4] Wage lag has also 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 and fewer people collect benefits. This is the basis for tapping the financial resources of the productive economy described above.

In addition to 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 September 2014 by June Zaccone. Thanks to Helen Ginsburg and Trudy Goldberg for their comments.

[1] “The share of workers with traditional pensions is down to about 15 percent. The rest either have no pensions or have 401k plans that are not pensions at all. 401k’s, like IRAs [Individual Retirement Arrangements] and Keoghs [tax-deferred pension plans available to the self-employed or unincorporated businesses], are tax-sheltered savings plans. More than half of people between 55 and 64 have no pension and no retirement plan at all other than Social Security.” Kuttner, 4/13

[2] “The risk of disability or early death is much greater than most people realize. About 39 percent of young men and 31 percent of young women will die or become disabled before they reach retirement age, according to the Social Security actuaries. Social Security’s life and disability insurance helps prevent poverty among families that suffer these losses. For example, a 30-year-old worker earning about $27,000 to $33,000 in 2008 with a spouse and two young children had Social Security disability and life insurance protection valued at over $450,000 each. “Social Security Is an Anti-Poverty Program,” By Ben Veghte & Virginia P. Reno, National Academy of Social Insurance (NASI), 5/10



[3] 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.

[4] “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

©The National Jobs for All Coalition