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Friday, October 28, 2016

Ignore The Deficit Hawks: Social Security Is Easy To Fix

On the 77th anniversary of Social Security, we’re celebrating what has made the program so important and why it remains vital today. Jeff Madrick explains why Social Security’s so-called fiscal crisis has been overblown and looks at the many simple solutions on the table. Read the rest of our coverage here.

Little is as distressing in the public discourse as the linking of the financial problems of Social Security and Medicare. It is a favorite ploy of the deficit hawks to claim we must reform our entitlement programs without distinguishing between the two. I am at a loss to explain this. It is clearly ideological — small government no matter who gets hurt. But Social Security payouts will rise from roughly 5 percent of GDP to 6 percent at worst down the road, while Medicare will rise by much more.

Nevertheless, poorly educated pundits, willing to believe the self-proclaimed centrist view that we cannot tax our way to solvency, demand Social Security reforms from selfish baby boomers. Monique Morrisey of the Economic Policy Institute does good work on this. Moreover, there is even a detailed Senate report on the issues that requires only a little updating. Maybe journalists should read it before they write about the subject. Its title is rather self-explanatory: “Social Security Modernization: Options to Address Social Security Solvency and Benefit Adequacy from the Senate.”

First, remember that Social Security provides nearly 60 percent of the elderly more than half of their income. Seventeen percent receive all their income from Social Security, mostly households headed by elderly women. Most remarkably, and it would be nice for young people to register this, the poverty rate measured by the federal government for the elderly was 35 percent in 1959. As Social Security became more generous, it was reduced to 10 percent, about where it stands today. This is one of the great social achievements of our time.

Now for that future financing gap. It’s true that payroll taxes won’t cover all the benefits to be paid in 25 years or so, as the ratio of the elderly to workers rises and life expectancy grows. But a more important and lesser known cause of this future gap is inequality of income. Taxes revenues are reduced because incomes have stagnated for so many. Due to an earnings cap above which taxes are not collected, now about $110,000 a year, combined with the rapid rise of incomes for high-end earners, some 17 percent of aggregate earnings are not covered by the payroll tax. In 1980, only 10 percent were not covered.

But the solvency gap, as we might call it, is not very large, amounting to only 2.67 percent of GDP. How can that be closed? Pretty darned easily. For example, the cap can be eliminated. This would close almost the entire gap if high-end earners do not receive higher benefits. It will still close four-fifths of the gap if they do.

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Copyright 2012 The National Memo
  • Social Security has always been an easy fix. Hyperbole from the right has not changed that fact, except perhaps in the minds of the ill informed voters. Fear and distrust are the weapons of choice because they work on the rubes. Articles like this one need to be spread far and wide to educate the voters before November.

  • m8lsem

    Social Security is over 90% of our family income, in part because of the right-wing’s faith in out-sourcing as a way to save money. In my case that out-sourcing event occurred while my private investment funds were at an all time low because of market conditions, and we were obliged to draw that money to move to another, larger community where at least one of us had a better chance of finding another job. Mine turned into short-term when they decided they could not afford to keep me, as did herself’s. End of story.

    • jarheadgene

      The right wing starting with Romney have ALL their faith tied up in their own pocketbooks. The trick is to fool those, that aren’t them, to want to kiss their asses and do what they say.
      And repeat after them all the rhetoric they can muster up to try and confuse all issues the thinking side bring up with the lack of fairness. I am a poster child myself for the results of huge corporate greed AT THE TOP. CEO’s of AT&T and MCI and taking HUGE very un-deserved chunks of money out of the companies and sending jobs of the underpaid blue collar level to India-China-Mexico where they can pay even less. I hope and pray for you that your employment returns. Let’s start by saying to all the RUTHLESS GREEDY…GO HOME…NO ONE WANTS YOU IN D.C.

  • dtgraham

    I’ve actually read all of this before from various writers elsewhere but had forgotten some of the details. SS is a created problem insofar as it’s future viability. When a rich nation pursues agendas that lead to such a high income inequality gap, over time, then raising or even eliminating the cap seems like a reasonable and fair thing to do. Perhaps just raising the cap and introducing a small increase in the payroll tax for everyone might be a more balanced approach. Either way.

    Sometimes looking at what the rest of the world is doing, with something that you’re wrestling with, can occasionally be helpful. There are 3 government pensions available to seniors in Canada and only one of them is financed via payroll taxes like U.S. social security. The other two come out of general taxation with one of them going to lower income seniors on a sliding scale. You get some, all, or none of that 3rd pension depending on your other income. Payroll and general taxation rates are set at levels that will accommodate present and future demographics and no one questions it. It’s considered too important I guess.

    I watch two foreign cable news services. I don’t pretend to understand the situation with senior pensions in England or Germany, but I do know this: I never, ever, watch news broadcasts from there that deal with crises in retiree pensions or even medical care funding. There is never any serious talk of future sustainability of “entitlements” for the sick and the old, just as there never is in Canada either. This is strictly American only, of the four different national current events/political shows that I watch. The question would be…..why?

    The thing is this; I’m just old enough to remember when this wasn’t a debate in the United States either. There was a time when the Republican Party accepted (no doubt begrudgingly) the social contract and the need for it. That was a while ago and they were a very different Republican Party. I’m fully aware of the libertarian, plutocratic, evangelical, freak show that’s trying to take over the modern GOP in a top-down basis (disguised as grass roots) but I have doubts about it’s long term viability. I think eventually that reasonable Americans will put an end to this nonsense, and it may start with this November election.

    • It’s good old fashion american greed that causes the problemswith SS and Medicare. By greed, I mean that of the oligarchs that are intent of taking over the government. Reagan raised the cap to increase SS availability for the boomers, but the government has used the trust fund as part of the general fund for things like tax cuts for the rich, paying down deficits and using them to show you have a budget surplus. Remember, Clinton told Bush to lay off the SS money, since he himself used it to show his balanced budget. But Bush did not listen and gave it away to help fund his tax cuts. If left alone, which it should have been, the trust fund would be at least twice what it is today. One thing, besides lifting the payroll tax cap is to adjust the cap every five years according to inflation. Right now, the cap should be at least $250K per year based on inflation of 3% since 1984. Medicare is obviously the greed of the insurance companies which is driving up health care costs in the name of profits for their share holders. Good ‘ol American greed at work. This is only the tip of the iceberg that is in store for America if the oligarchs take over.

      • dtgraham

        It just simply makes no sense that the richest country in the world with a 15 trillion dollar a year economy can’t afford senior’s pensions when others can. A lot of the costs in medicare can be dealt with if you could… i) break the back of big pharma and start negotiating drug prices by the federal government ii) get the private sector largely out of it because health care is so different from the rest of the economy. Market dynamics don’t work in that sector. That’s my opinion.

        • hilandar1000

          You and Kenneth are so right! Corporate ownership and monopoly of the health care field is our most pressing problem. President Obama recognized that fact — that’s why he tried to fix that problem first. I recently did a study, factoring in basic costs as well as cost of advanced technology. My findings were that the median income would have to be in excess of $275,000/ per year for each American household in order to keep up with rising health costs since 1960.
          Although I am a firm believer in the two-party system, it is becoming more and more apparent that the GOP has been taken over by corporate greed and those who can be coerced by fear into believing the lies they are being fed. This is a very pivotal election. I’m not at all sure that democracy can survive another 4 years if the GOP gains complete control again.

      • karinursula

        Thank you Kenneth, You said it all

  • Social Security remains solvent, and could remain solvent for decades to come by simply raising the contribution cap from $106K to $200K. It does not use funds from the general budget and there is nothing that suggests it will any time soon. SS, like MEDICARE and MEDICAID have been targeted by the GOP for decades, not because they are not needed or because they are inefficient, but based strictly on ideology. All industrialized nations have social programs designed to help their senior citizens, students, the middle class and the poor. We stand alone in our efforts to demonize programs that benefit the middle class and our most vulnerable citizens, while championing tax breaks for those who do not need them.

    • 13observer

      Now add 12 to 20 million….and lots more to come… “illegal aliens” to the program and it soon becomes insolvent! How much poverty do you want to take on?

      • Illegal immigrants are not eligible for Social Security, MEDICARE or MEDICAID. That is a myth that is not supported by facts. Bear in mind that the overwhelming majority of Hispanics you see in our communities are here legally, either because they were born here or because they entered the country with a visa. I live in Florida and the two largest Hispanic groups in this state are Puerto Ricans, who are U.S. citizens the moment they are born by virtue of the fact that PR is a U.S. territory, and Cubans who have been granted asylum and a fast track to permanent residency since President Reagan signed legislation to that effect.

      • Even churches I have attended have “benevolent” funds – designed to help people. United States is the big brother of the world, and wants to be that way, its been this way before you and I were born – being benevolent. If you are a big brother you try to see about your family and if you have a heart, you try to help others who may truly need it. After ascertaining they cannot get the help they need to keep from starving or living in the streets, the United States has ALWAYS tried to help others. What about storms, natural disasters all over the place – should we turn our heads? All that stuff costs money – this campaign is not about economy or the President spending money, its about rich guys wanting to add another feather in their cap. They do not care about the PEOPLE (white or black, yellow or whatever). Guess what – all we have to do is PRINT more money. Its worth more in this world than anybody else’s.

  • 13observer

    I will make myself more clear…….Obama plans full well to engage in some form of “AMNESTY” for illegal aliens just like he did with 1.3 million youth he recently gave amnesty and American jobs to. So don’t you kinda think he is hell bent on “immigration reform” no matter what? So, maybe now you see why I referenced 12 to 20 million. I know that today they are not eligible for Social Security……but I was talking about tomorrow! If you need me to make it more clear yet, I will do so.

    • jarheadgene

      I sense a fear of aliens…get away from the Fear Factor GOP. Allow amnesty and those same people can put into the SSN thereby building it up. If they are illegal they are not entitled to put in or take out of SSN. Don’t be so scared my family ancestory are mostly Native Americans to us…..YOU ARE ALL IMMIGRANTS. But we’ve learned to deal with it and have served in every war since WWI.

    • Terry Warns

      Mitt Romney favors tax amnesty for those who have Swiss Bank Accounts

      • 13observer

        Obama obviously favors tax amnesty for illegal aliens with accounts in Mexico receiving most of what they make here while living off our social welfare programs……..NEXT

        • DukeDacat

          Hey, 13observer………
          Are you today’s second string back up for OBOZO?

  • William Deutschlander

    Social Security is VITAL and is EASY TO FIX, all it would take is a few STATESMEN and some INTELIGENCE to insure SOCIAL SECURITIES solvency for the future.

    Trouble being, CONGRESS does not have any evident STATESMEN or any members with a little bit of INTELIGENCE, they are mostly beholden to their puppetier.

  • Terry Warns

    Medicare can be extended with three simple changes.

    1. Double the Medicare rate from 1.3 to 2.6%.
    2. Create a second tier Medicare benefits. If your wealth is over say $500K, you pay 40% copay rather than 20%.
    3. A single payer system for anyone whose annual health care costs exceed $100K. This can be financed with a 5% tax on health insurance premiums. This will also lower both general health care insurance premiums but also help Medicare.

    Three simple changes.

  • riobob111

    Isn’t it a damn shame how Romney and Ryan have nothing to say but down our President who is trying to clear up the mess the Republican Party has made for our country
    Come on people, get smart support Obama and give HIM a better Congress.

    • You are right Rio, we have to look beyond the presidency and make sure President Obama, and his democratic successor four years from now, have a Congress focused on writing and passing legislation designed to improve our standard of living, create jobs, and do everything possible to maintain our national security; instead of one that proudly states that their “most important priority is to make sure President Obama is a one term president”.

      • riobob111

        Thank YOU Dominick, I hope more Americans get wise to the facts
        Bring the jobs home, stop outsourcing. Support OUR President Obama.
        I grow tired of speaking to people in India or elsewhere when I look for anything.

  • Social Security is a insurance plan for the people, Congress used it as their slush fund for years. the program works even for the people who didn’t pay into the program. The trouble is that the republicans want to make a profit, they are a greedy bunch look at Romney and Ryran both millionairs. Illegal emmigrants add to our society not distract from it. This contry has grown by helping each other not bigotry. The congress has a lot of IOU’s to pay back to Social Security and they don’t want to do it.

  • 13observer

    Print more money? Really? I would suggest an economics course. Helping someone out is one thing….creating a dependence is quite another! Hell, we would all rather go fishing than work!

  • if the people were told the truth about the bush agenda, or had brains enough to see what that nazi klan has done to this nation and this world, thay would demand their imprisonment. not likely to happen where the
    ‘news” comes from outlets like fox tv. or the lush rambos we get stuck with.