NEXT KCDW MEETING – MAR 23TH 
This month we will be meeting at Country Meadows in the Red Barn. Our speaker will be Denny Hamilton from TAP – Training Associates Pacific who will be talking about Humanitarian Issues in the Middle East. For information about TAP go to http://tap-trainingassociatespacific.com/.

RECLAIMING THE SOCIAL SECURITY ARGUMENT
by Jo Fox Burr

When a young relative of mine once commented with confidence and acceptance that she would never benefit from Social Security, it alarmed me for two reasons. First I was concerned that those seeking to change the current structure of Social Security, possibly to destroy it, were being more successful in their messaging than I had realized. If the young have given up on Social Security being there for them, then working to save it would be harder. Probably more concerning, though, was that I did not really know enough to refute the claim. So I decided to spend time trying to understand it better. This was not easy and I will not claim to have all the facts straight yet. Still, I think I know enough to say that it is not as broken as some would like you to believe. Acting now to make some minor adjustments would likely guarantee all would receive the full benefits to which they are entitled, and its survival in the basic structure in which it currently exists is vital to the health of our society for both social and economic reasons.

Until 2010, payroll taxes paid to Social Security exceeded benefit payments. In fact, as a result of legislation enacted under Reagan, payroll taxes were increased in order to build up a trust fund to ensure the solvency of Social Security for the Baby Boomers. There is now $2.6 trillion in this fund. The only problem is that this money was combined with the General Fund and spent on other things. So now, when this fund needs to be tapped, some claim this means Social Security is running a deficit and thereby contributing to the Federal Debt. As Paul Krugman says, you cannot have it both ways. “You can’t say that for the last 25 years, when Social Security ran surpluses, well, that didn’t mean anything, because it’s just part of the federal government – but when payroll taxes fall short of benefits, even though there’s lots of money in the trust fund, Social Security is broke.” The government as a whole is going broke, but Social Security as a stand-alone entity is currently solvent. Still, this trust fund is likely to run out of money in 2037 or 2041 or 2052, depending on who’s counting. Whenever it happens, though, should no adjustments be made, incoming payroll taxes will still be able to cover something like 78% of the benefits promised. Given that by 2040 full projected benefits for the typical middle-class retiree will not only include an adjustment for inflation, but also an additional amount of something like $8000, receiving only 78% of this is not optimum, but it could be much worse.

Changes being suggested to fix this long-term solvency issue vary greatly, some more draconian than others. Of course privatization is still on the table for some.

There is not enough space here to detail why this is fiscally impractical, but most of us know about this already. Others want to increase the age of retirement to 70, based on the argument that people are living much longer. Well, that may be true for white collar higher wage earners, but not so for the other half of society, many of whom work in labor intensive jobs. In 1982 male life expectancy after age 65 was 15 years for the bottom half of earners and 16.5 years for the upper half. In 2006, those in the lower half only increased their life expectancy to 16.1 years, while the upper half increased it to 21.5 years. Further, this would particularly disadvantage African-Americans who have an overall lower average life expectancy. It seems to me that the fairest way to fix the problem is to raise the cap on which payroll taxes are collected. Right now payroll taxes and employer fees are only collected on earnings up to $106,800. No payroll taxes are collected on earnings above that amount. While there are several proposals on how to raise the cap, the one that seems most viable to me would be to eliminate the cap on employer contributions and raise the top limit on employee contributions to 90% of all earnings. Distribution of benefits tries to be progressive, giving proportionally more back to lower income beneficiaries than upper income beneficiaries.. To encourage support of raising the cap to 90%, it seems politically wise to allow some proportionally small return on payroll taxes collected above the current cap on these taxes. To give a full return, however, would leave us no further ahead in solving the solvency issue. Whether or not it would cover the gap completely is still uncertain, but it would definitely make significant progress toward this goal. If it did not, then other measures could be implemented. In fact a bill could be written to institute an automatic trigger if needed. There are those that would argue that this will cost jobs, most likely among the higher earners, but they are also the ones who argue that taking away Bush’s tax cuts for the wealthy will cost jobs. Yeah, perhaps a few – but hey the wealthy in our society are doing well at the moment and it is time they share the pain.

As to the importance of Social Security, well it is one of the most successful programs our government has ever enacted. It provides benefits to one quarter of all households, covering not only retirees and their widows, many of whom are outliving other sources of retirement income, but also disabled workers and their families, and dependents of breadwinners who die prematurely. Because of Social Security, most elderly now live above the poverty level. In July of 2005, 3.9 million children received Social Security benefits, many of whom depended on this source of income to keep them above the poverty level. Further, the Social Security Administration currently estimates that one out of every three workers will become disabled before reaching retirement age. During this last economic downturn, had Social Security not been there for those who needed it, our economy could have suffered even more severely. One can only wonder what a difference it would have made had it been there at the start of the Great Depression.

Beyond all of this, Social Security is an important intergenerational interdependency compact between the young and the old, as well as other elements of our society. Just as the seniors of today paid for the generations before them, younger workers now provide the payroll taxes that pay the benefits of the elderly today. With minor adjustments they themselves will benefit from younger workers when they become elderly or disabled and this cycle will continue. Further, the economic independence Social Security provides to those dependent upon it relieves their families from having to financially take care of them. In return, a third of retirees provide childcare for their grandkids which enables many young parents to work. Social Security provides important ties that weave the young and old and disabled together into one society, both socially and economically, and in doing this makes our country a stronger entity. Among many other reasons that privatization of Social Security makes no sense it would fracture this invaluable compact.

So the next time you hear someone denigrate Social Security, remember that Social Security is facing solvency problems only if we do nothing. I hope this gives you some ammunition to argue for a fair resolution of its problem.

“Social Security is a truly national social insurance structure. It is designed to share risk across a broad population: across employment status, across race, across geographic location, and, critically, across age. Any proposals to “fix” Social Security must strengthen this core principle of risk sharing, including risk sharing across generations.” Alexander Hertel-Fernances from The Roosevelt Institution & The Economic Policy Institute AND Nathaniel Loewentheil from the The Roosevelt Institution.