[PAA-Discuss] FW: Another Attack on Social Security

[Lee Loe]

I keep wondering if our public officials don't understand what "Promote the
general welfare" means or that it means for all the people! Lee/Mom/Cuz

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Published on OurFuture.org ( <http://www.ourfuture.org/>
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Budget Baloney: Why Social Security Isn't a Problem for 26 Years, and the
Best Way to Fix It Permanently

By Robert Reich
Created 02/17/2011 - 1:05pm

[ <http://robertreich.org/post/3331762717> Originally posted at
RobertReich.org [1].] 

New Jersey Governor Chris Christie, a Republican presidential hopeful, says
in order to "save" Social Security the retirement age should be raised. The
media are congratulating him for his putative "courage." Deficit hawks are
proclaiming Social Security one of the big entitlements that has to be cut
in order to reduce the budget deficit.

This is all baloney.

In a former life I was a trustee of the Social Security trust fund. So let
me set the record straight.

Social Security isn't responsible for the federal deficit. Just the
opposite. Until last year Social Security took in more payroll taxes than it
paid out in benefits. It lent the surpluses to the rest of the government.

Now that Social Security has started to pay out more than it takes in,
Social Security can simply collect what the rest of the government owes it.
This will keep it fully solvent for the next 26 years. 

But why should there even be a problem 26 years from now? Back in 1983, Alan
Greenspan's Social Security commission was supposed to have fixed the system
for good - by gradually increasing payroll taxes and raising the retirement
age. (Early boomers like me can start collecting full benefits at age 66;
late boomers born after 1960 will have to wait until they're 67.)

Greenspan's commission must have failed to predict something. But what? It
fairly accurately predicted how quickly the boomers would age. It had a
pretty good idea of how fast the US economy would grow. While it
underestimated how many immigrants would be coming into the United States,
that's no problem. To the contrary, most new immigrants are young and their
payroll-tax contributions will far exceed what they draw from Social
Security for decades.

So what did Greenspan's commission fail to see coming?

Inequality.

Remember, the Social Security payroll tax applies only to earnings up to a
certain ceiling. (That ceiling is now $106,800.) The ceiling rises every
year according to a formula roughly matching inflation.

Back in 1983, the ceiling was set so the Social Security payroll tax would
hit 90 percent of all wages covered by Social Security. That 90 percent
figure was built into the Greenspan Commission's fixes. The Commission
assumed that, as the ceiling rose with inflation, the Social Security
payroll tax would continue to hit 90 percent of total income.

Today, though, the Social Security payroll tax hits only about 84 percent of
total income.

It went from 90 percent to 84 percent because a larger and larger portion of
total income has gone to the top. In 1983, the richest 1 percent of
Americans got 11.6 percent of total income. Today the top 1 percent takes in
more than 20 percent.

If we want to go back to 90 percent, the ceiling on income subject to the
Social Security tax would need to be raised to $180,000.

Presto. Social Security's long-term (beyond 26 years from now) problem would
be solved.

So there's no reason even to consider reducing Social Security benefits or
raising the age of eligibility. The logical response to the increasing
concentration of income at the top is simply to raise the ceiling.

Not incidentally, several months ago the White House considered proposing
that the ceiling be lifted to $180,000. Somehow, though, that proposal
didn't make it into the President's budget.

  _____  

Robert Reich is the author of
<http://www.amazon.com/Aftershock-Next-Economy-Americas-Future/dp/0307592812
> Aftershock: The Next Economy and America's Future [2], now in bookstores.
This post originally appeared at  <http://www.robertreich.org/>
RobertReich.org [3].


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Links:
[1] http://robertreich.org/post/3331762717
[2]
http://www.amazon.com/Aftershock-Next-Economy-Americas-Future/dp/0307592812
[3] http://www.RobertReich.org


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