Social Security, Part 1 – Speaking Truth to Fear

by on February 9, 2011 · 26 comments

in Culture, Economy, Health, History, Labor, Popular

There has been a lot of scary talk in the mainstream media and from politicians regarding Social Security, and it’s not been just lately, it’s been going on for decades. Using words like crisis, bankrupt, crisis, “trust fund raids”, crisis,  opponents of Social Security have been putting fear and doubt into the hearts and minds of workers and creating a divide between the generations.

Last week we took a poll of readers regarding social security. Take a look at the results;

Social Security has been in the news a lot lately, what are your views on this program?

  1. I see some concerns for the future and I support fixes now to protect it.
    51% of all votes
  2. It will be bankrupt before I see a dime.
    18% of all votes
  3. Privatization is the only answer.
    8% of all votes
  4. I don’t see any problems.
    9% of all votes
  5. I don’t pay into it and it doesn’t concern me.
    0% of all votes
  6. It’s “a milk cow with 310 million tits”1
    2% of all votes
  7. I want Socialism not Crumbs!1
    6% of all votes
  8. What’s Social Security?1
    2% of all votes
  9. can pay full benefits until 2037 & 4/5 of benefits afterward1
    3% of all votes
  10. Homeless seniors is totally worth making billionaires richer.1
    1% of all votes

Total Votes: 109 Started: January 29, 2011
1 Added by Guest

The arguments for and against Social Security are many and complicated, and I want to address some of these points in simple terms. There are some concerns for the future but if we address them now, decades before there will be imminent consequences, we can easily ensure this valuable program is available to all Americans.  We need to educate ourselves and the people we know to protect Social Security from the those who want to privatize it or outright end it.

“It will be bankrupt before I see a dime”

I know I felt this way for a long time and these days many people, and especially younger people, believe that the money they are paying into the social security system is just going into some black hole and they will never see a dime of it. One of the common misconceptions about Social Security is the belief that the money deducted from our checks goes into some piggy bank with our name written on it, but that just isn’t true. It goes into the pool of funds that pays current recipients; your parents, your grandparents, your disabled neighbor or the child of your deceased sibling, to name a few.

During the past twenty five years or so there has been a build up of surplus funds, more money coming into the program than what has been paid out. By law these funds are invested in US government bonds. The funds come from employee and employer payroll contributions, taxes paid on some social security income by upper earning beneficiaries and interest earned on the government bonds. The dollar amount invested in those bonds is roughly $2.6 trillion. That’s $2,600,000,000,000! How is it that they keep telling us that Social Security is going bankrupt? That it’s in crisis? These bonds are fully backed by the government. If the government defaults on those bonds we have much bigger problems to address.

The truth is, as a reader added in the poll above (see #9, thank you kind reader!) even if we do nothing to change the system, it is estimated by experts that it will be able to pay full benefits through 2037 and about 78% of benefits in the years following. Even if we do nothing!

Aah, it must be The Boomers!

We hear all the time that it is the impending retirement of millions of Baby Boomers who are putting Social Security at risk. But it is not the first time that we’ve been faced with problems. In 1983 the system came within months of not being able to make on-time payments to beneficiaries. From the SSA.gov website;

“The 1983 amendments, passed in record time by the 98th Congress, represent a bipartisan effort to deal with serious near-term and long-range financing problems facing the Old-Age, Survivors, and Disability Insurance (OASDI) program under prior law. Since 1975, expenditures of the OASDI program had exceeded revenues and it was anticipated that, without legislative action, it would not have been possible to continue paying OASDI cash benefits on time beginning in July 1983.”

The 1983 amendments included the gradual raising of the retirement age from 65 to 67 (for me personally it’s 66-10/12) and increases in the payroll tax. In 1983 payroll taxes were 10.8%,  last year they were 12.4% of earnings up to $106,800 (called the wage cap, we’ll get to that in a bit). This year, with the payroll tax cut put in effect by President Obama, the rate is 10.4% of earnings (6.2% paid by employers and 4.2% paid by workers) to the wage cap. When I heard about this tax cut it was a “WTF” moment for me. Why Obama would enact something that would further the talking heads’ position that Social Security in headed for failure… But that is a whole ‘nother post…

Back to my point, during the last 25+ years we have (and I’m considered a Boomer) paid more payroll taxes than the previous generations and many of us will retire later. It is because of the payroll taxes that we have paid that there is a surplus now, and why many of our parents have been able, financially, to live on their own. In 1983 they knew how many of us there were and put in place fixes that would ensure our future. It’s time to look to the future of the next generation.

“310,000,000 Tits”

Alan Simpson, co-chair of President Obama’s deficit commission, made a remark in an email (that has many calling for his resignation or removal) sent to Older Women’s League chief Ashley Carson where he compared Social Security to other American systems and likened it to “a milk cow with 310 million tits.” If he’s referring to the total population I’m not sure, but according the SSA website in December of 2010 there were about 59 million people receiving some type of Social Security benefits. More than 150 million workers paid Social Security payroll taxes. I say to Alan Simpson, you feed the cow to ensure the milk, not just for yourself, but for your parents and your children.

Privatization is the NOT the answer

For a couple of reasons. First, $$$. The Social Security system is one of the most efficiently run insurance programs in the world, with overhead of about 1% of annual benefits. In comparison, in the United States, overhead for annuities (a plan where the benefit is split into equal payments over a period of time, instead of a lump sum payment) provided by private firms averages about 20%; for every $100 paid in, $20 gets siphoned off in fees. And almost no annuities offer cost of living increases.

Second, more $$$. Social Security also covers disabled workers, survivors of deceased workers and a whole host of others.

Third, still more $$$. Investing your retirement funds in the stock market? What would have happened to your retirement nest egg a couple of years ago if Bush had had his way? Where would we be now? I know, some people make money in the market, but the reality is most of us wouldn’t. Most of us wouldn’t know where to start and honestly, if the money was available wouldn’t something always come up? Doctor bills, car repairs, your kid’s education? Or just trying to survive now because you lost your job?

Thoughts for the future

There are many things we can do now to make sure Social Security is around after 2037, for our kids and grandkids. None of these things are drastic measures and if we instituted several fixes it would decrease the impact even further. We’ve survived the changes that were put into place in 1983 and we can do it again. These are a few possible solutions being discussed now and my thoughts on them. I will go into more detail in a further post.

  • Increasing the payroll tax. An increase in the tax rate from 12.4% to 14.6%. If both the worker and employer contributions increased 1.1% each, many believe this alone would solve future problems. That’s $1.10 for every $100 you earn. If you make $1000 a week, that’s eleven bucks. That’s the price of a pound of decent coffee.
  • Raising the wage cap. The current wage cap is $106,800. If you make more than that the income above it is not subject to Social Security taxes. This creates an unfair burden to lower income workers. If someone earns twice that amount they will receive the same benefit as someone who earns $106,800, but they pay in only 3% of their wages. And the more they make, the lower this percentage gets.
  • Raising the retirement age. Many of us will already retire later than our older relatives. There is talk of raising the retirement ago to 70! Again, this creates an unfair burden to some workers. Imagine having to continue in labor intensive jobs until you are 70. It’s one thing to sit a desk all day (which in itself is tiring) but having to lift heavy objects, swing a hammer, turn a wrench or climb in a trench… And if the job market continues the way it has been a lot of people will become destitute before they are even eligible for Social Security.
  • Reducing benefits. I stated earlier in this post that even if we do nothing to boost Social Security it will be able to pay 78% of benefits after 2037. The whole point of making changes for the future is to eliminate the need to reduce benefits! What’s the point of talking about fixing something if the goal is to keep it broken?

This is surely an over simplification of things, so I invite your thoughts and questions. In future posts I will try to address those concerns.

{ 25 comments… read them below or add one }

avatar annagrace February 9, 2011 at 12:14 pm

Terrific overview Patty! The ongoing onslaught against Social Security reveals how truly pernicious and morally bankrupt “disaster capitalism” is. Naomi Klein writes extensively about this in her book Shock Doctrine. “For more than three decades, (Milton) Friedman and his powerful followers had been perfecting this very strategy,” she wrote, “waiting for a major crisis, then selling off pieces of the state to private players while citizens were still reeling from the shock, then quickly making the ‘reforms’ permanent.”

It is shameful that Wall Street is paying out record bonuses- again, and Social Security recipients did not get a cost of living increase this year.

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avatar Shane Finneran February 9, 2011 at 2:14 pm

Thank you so much, Patty, for this terrific breakdown. More people need to recognize that Social Security is NOT facing crisis… it’s just that SocSec haters really want you to think it is, and even try to push it towards a real crisis (by taking steps like “temporarily” lowering the payroll tax).

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avatar Patty Jones February 9, 2011 at 6:32 pm

I’ve been trying to inform people I know. I’ve been explaining the situation to my kids, and told them “if they do away with social security I’m going to be living with you!”

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avatar annagrace February 9, 2011 at 6:57 pm

It is worth noting that our unemployed, underemployed children are now living with those of us who have worked all of our lives and are now as dependent upon them as they are upon us to keep body and soul together.

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avatar Frank Gormlie February 9, 2011 at 9:04 pm

I have many friends whose grown children are living with them because it’s so difficult these days to live on your own if you’re young and without a lot of resources. Maybe the OB Rag should publish a ‘How to Guide’, you know, ‘How to Live With Your Adult Children.’

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avatar Patty Jones February 9, 2011 at 9:05 pm

Anna, as you know, my daughter’s small family lives with here with us. All of us being together allow us all to live better than we could if we lived apart. Not only financially, but because of what my daughter calls “collective efficiency”, because we work together, we all do things for each other, we do what we are good at and make life better for the whole group.

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avatar Frank Gormlie February 9, 2011 at 7:07 pm

This was the most comprehensible and understandable piece I’ve ever read about social security. Thank you very much for doing this. I know you’ve read many books on this subject, and that the writing process “is a struggle” for you, but your writing is so clear, to the point, that your future struggle should be not how to write but how not to write more. Looking forward to more on social security.

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avatar Patty Jones February 9, 2011 at 9:07 pm

“The struggle” was how to keep it from turning into a book… ;)

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avatar John P. Falchi February 9, 2011 at 8:24 pm

This is a very well written piece on a very important subject. In my estimate, the Old Age, Survivors, and Disability Insurance Program, that Frances Perkins and other New Dealers developed back in the 1930s, has been one of the most successful insurance programs ever devised, and we need to continue to protect it.

Patty Jones has put before us the case for shoring up our Social Security System with changes that will not deter it from its normal way of operating. In contrast, the neo-conservative attack upon the social security system is an attempt to privatize it. So far, it has not succeeded. However, we must be ever vigilant that, when they try it again, we and our representatives are prepared to defend it with some of the arguments in its favor, and for its improvement, that Patty has put before us.

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avatar Patty Jones February 9, 2011 at 9:53 pm

Thank you John!

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avatar Shane Finneran February 9, 2011 at 8:43 pm

Alan Simpson’s “milk cow with 310 million tits” quip was a rare slip-up… a look into the real sentiment driving efforts to disrupt Social Security.

Why would a guy like him — with more money and power than anyone could hope for — begrudge a program that helps millions of his fellow Americans live much more comfortably in their retirement?

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avatar Patty Jones February 9, 2011 at 10:33 pm

Probably because HE doesn’t need it. You’ve heard the word curmudgeon? How about begrudgeon?

NEW WORD!
be·grudg·eon
-noun, a bad-tempered, difficult, cantankerous person who doesn’t want anyone else to have shit!

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avatar annagrace February 10, 2011 at 7:29 am

Begrudgeon- I love it!

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avatar Sarah February 11, 2011 at 11:04 am

T-Shirt possibilites come to mind…

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avatar Patty Jones February 11, 2011 at 5:21 pm

LOL!

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avatar Paul J Friedman February 9, 2011 at 8:48 pm

Very nice discussion. Patty. Oh, if only we could persuade the naysayers of your veracity! The only thing I would hedge on is the retirement age. While unemployment is currently a problem, and therefore the young need the positions vacated by us seniors, this will not remain the situation for very many years. People are simply not aging as much as they used to, and the slogan, “the new 70 is the old 60,” contains more truth than poetry. Therefore I would take exception to your plea to keep the payout age as it is.

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avatar Patty Jones February 9, 2011 at 9:44 pm

Thank you, Paul. I doubt we will change the minds of the naysayers but maybe we can keep those folks that are on the fence from falling on the wrong side.

Coming from a blue collar background, working in machine shops, dealing with heavy materials and repetitive tasks I understand how the daily grind of labor can affect your body and health. I worked with a man in his early sixties at my last job who has worked physically hard all his life and was counting the days until he could retire. I cannot even imagine telling him he has to work so many more years.

I understand that the increase in retirement age wouldn’t affect him, but those jobs are not going to go away, nor should they (we need more of those jobs to come back to the US!) but future workers may face even more difficulties. Because of the nature of the workplace nowadays with “lean manufacturing” (smaller and smaller crews, doing more and more work) and fewer chances of advancement in the ranks, there may be an increase in disability claims or workers’ comp claims if employees are not able to find jobs that are less taxing to the body. Typically someone that qualifies for social security disability receives more on their monthly disability check than they would in old age benefits.

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avatar Sarah February 10, 2011 at 9:51 am

What a great article, Patty

Thanks for the clarity

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avatar Barb February 10, 2011 at 12:34 pm

Patty,
This article is such a well presented survey of the ‘real scoop’ that I am printing it to give to friends. Thank you! Thank you!

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avatar Patty Jones February 10, 2011 at 12:49 pm

Thank you Barb, spread the word!

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avatar Peyton Farquhar February 10, 2011 at 7:02 pm

Given that SS is so wonderful and everyone is going to get out of it exactly what they put into it because the federal government would not possibly default on financial obligations to those at the bottom who are currently subsidizing someone **else’s** retirement at the top of the Ponzi Pyramid, I would prefer an option to not participate in the generational transfer of money known humorously as “social security.” I would like to invest for myself the money that is siphoned out of my paycheck instead of paying into the kitty.

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avatar Shane Finneran February 10, 2011 at 7:25 pm

Hey, Peyton, what’s your investment strategy? Because I’ve worked in the field of investing, and one of ironclad rules of the business is that when regular people wade into the investment waters, they tend to make all the wrong moves, time after time after time.

Do you think each American is or should be savvy enough to handle the math-intensive not to mention shark-filled investment markets? To me, that’s like asserting that each of us should be able to surgically remove our own appendices. But I’m curious what you think.

And please, on investing, share a little bit about your system.

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avatar annagrace February 10, 2011 at 8:08 pm

Hey Peyton- my 80 year old Dad, who voted to put Nixon in the White House twice, gave me some great insight before he died on the “generational transfer of money.” My elderly parents had a $2,00/yr school tax bill, on top of their property and borough taxes. I slapped my head and said “It ain’t right that you, retired for over 20 years, have to pay these school taxes.” My father looked at me with his “you are a jackass” sharp gaze and reminded me that all those years that my siblings and I were in school our unknown fellow citizens were footing the bill for our education and he had an obligation to do the same for younger people’s children.

So let me say a few more words about “generational transfer” Peyton. I do not complain that my taxes- and I am retired- go to support soccer fields and basketball courts in our park, despite the fact that I will never use those amenities. Nor do I complain that my taxes go toward schools, despite the fact that I have never had children.
I assume that you are decades away from retirement and the future doesn’t look particularly promising and I can understand that you want to be the captain of your ship. Don’t we all! For those of us further along in life, the future doesn’t look particularly promising either. That is significant. We have an opportunity to work together to make sure that we maintain one of the strongest pieces of progressive legislation in our country- Social Security. It is not humorous. It is deeply significant.

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avatar Shane Finneran February 17, 2011 at 6:10 pm

Peyton u there?

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avatar JEC February 11, 2011 at 8:20 am

An important fiscal detail – The Federal Government has been stealing worker Social Security contributions for decades. Soc. Sec. is a trust fund separate from the Government’s operating budget. For decades the fund has received more revenues than benefits paid out. This ‘surplus’ was to accummulate, collect and compound interest in preparation for the day when the benefits paid would exceed the revenues. This “Surplus”, an unfortunate term, has been taken by the government to pay annual operating expenses and to pay for wars. You may remember back in 2006 George W. Bush saying the $1.2 trillion in IOU’s owed to the SS Trust fund are worthless – it sent the bond market into a tail spin for a week. Part of the Nation’s deficit problem today is due to the fact the SS payroll taxes no longer deliver a surplus.

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