Insured Success: Social Security's Viablity Only Threatened By Today's Pollitics
|Posted by Will Rice (will) on Nov 07 2011 at 12:56 PM
|FALL 2011 >>
By James Roosevelt, Jr.
As the dozen members of the Congressional Joint Select Committee on Deficit Reduction – the so-called “Super Committee” – battle over how to control our nation’s burgeoning federal deficit, there are pressures to put everything on the table, including Social Security. The Super Committee has the authority to consider the report of the Bowles-Simpson fiscal commission created by President Obama in 2010, which included recommended policy changes to Social Security. Now, I don’t believe there should be any “sacred cows” in these discussions, but the recommendations on any particular program that are part of any future deficit deal should bear some relatioship to their relative contribution to the national debt.
By that standard, Social Security should be off the table of the Super Committee. Social Security has not contributed a dime to the current federal deficit. By law, the receipts and disbursements of the Social Security Trust Fund are excluded from the president’s budget and the budget resolution passed by Congress. Social Security has its own revenue source, is prohibited from borrowing funds or going into debt, and can only pay benefits from its own funds. There is no deficit financing. Social Security benefits do not contribute to the federal budget deficit because they are not part of the federal budget.
While the Super Committee is not the place to consider changes to Social Security, we do need to make some reasonable adjustments to Social Security revenues and benefits to assure that the program can pay full benefits and remain solvent over the long term.
Social Security is the cornerstone of Americans’ retirement security. It needs to be preserved, strengthened and guaranteed for all Americans.
Before my grandfather, President Franklin D. Roosevelt, signed the Social Security Act into law in 1935, old age was something to be feared. But Social Security has by and large liberated senior citizens from living in poverty. The proportion of seniors with income below the poverty line has been reduced by more than 70 percent. Without Social Security, it is estimated that nearly half of all elderly Americans would be living in poverty today.
Enhancing the long-range fiscal solvency of Social Security only requires modest changes because Social Security is actuarially sound and has accumulated a very large surplus: $2.6 trillion in real assets are in its Trust Fund. These reserves are sufficient to pay full benefits for the next 25 years (and 78 percent of benefits thereafter). Social Security is not in crisis, but we do need to make reasonable changes now so that we can reassure all Americans that Social Security will be there for them whenever they retire. The sooner we make those adjustments, the less painful they will be.
We have been making such reasonable changes to Social Security since it was established. Congress has enacted ten significant Social Security bills, the last one in 1983, each of which, as Nancy Altman has pointed out, “has left the program in long-run actuarial balance.”
Making some responsible changes to Social Security is not something we should fear. But the changes we do make should go towards strengthening Social Security – not reducing the federal deficit. And even if the retirement benefits of Social Security recipients don’t wind up being considered by the Super Committee, we should also resist cuts to the operating budget of the Social Security Administration. Social Security is highly efficient: the program returns more than 99 cents out of every dollar collected to its beneficiaries. With more than 1,000 Baby Boomers turning 65 every day, it is important to the functioning of the system that we have the necessary staff to process new claims.
What are some changes that could extend the long-term solvency of Social Security?
On the revenue side, we should raise the cap on wages subject to Social Security contributions. Currently, only earnings up to $106,800 are subject to FICA. Historically, FICA has covered about 90 percent of the aggregate wages of all workers. However, because of rising income inequality, today that figure is 83 percent. We should increase the cap to restore FICA to its historic aggregate wage level.
We might also consider expanding the base of workers covered by Social Security. Almost all workers currently pay into the system, with the exception of about one-quarter of state and municipal government employees who are covered by alternative pension systems. If we extended Social Security to all newly-hired state and local employees over the next five years, this would contribute to closing the gap while also eliminating another burden on state and local governments.
There are a few ideas about strengthening Social Security’s long-term solvency to which I am very opposed. First, I am absolutely against any cut in payment levels. Social Security pays only modest amounts to begin with. The average monthly benefit check is around $1,100. Cutting benefits would expose millions of Americans to financial distress – especially the one-third of elderly retirees who depend on Social Security for 90 percent or more of their income.
I also have real concerns over raising the retirement age at which workers can collect benefits, as many are proposing. This seems intuitively appealing; as human life expectancy increases we should extend the age at which you can collect. However, this is misleading. Most of the increase in longevity has been driven by the decline in infant and childhood mortality. More importantly, there are many people who work in occupations, especially involving intense physical labor, where it is unreasonable to think they can work to a later age. We should not contemplate raising the retirement age unless we revamp the disability system under Social Security. Otherwise, we would be creating unacceptable hardship for whole groups of workers.
Making these required changes is something our politicians should be able to accomplish. After all, if Americans are united on any issue it is that Social Security –the most successful social program in our nation’s history – should be protected, strengthened and guaranteed for all Americans.
James Roosevelt, Jr., is president and CEO of Tufts Health Plan and former associate commissioner for Retirement Policy for the Social Security Administration. He is a grandson of President Franklin D. Roosevelt.