Understanding Social Security
A mailing received from a group that calls itself American Federation of Senior Citizens declares that “Obama and the liberals continue to use something that they call the Social Security Trust Fund—draining that fund to pay for needless pork projects and massive government spending. The fact of the matter is that there is no Trust Fund.” In addition to crediting the President with draining a fund that doesn’t exist, this mailing projects a willful or grossly ignorant distortion of the Social Security system. I interrupt this sophomoric attempt to mislead seniors to interject elements of truth that I think can be helpful.
Social Security retirement and disability payments have been paid for by the 6.2% payroll tax of gross worker income paid by both employer and employee (12.4% total.) To this date, income from payroll taxes has exceeded payments to recipients. The surplus income has gone into the Social Security Trust Fund. By law, this fund can be used only to preserve the capacity of the Social Security system to pay benefits. It cannot be used for any other purpose. Funds in the Trust Fund have been invested in U.S. government securities.
That said, there is a real Social Security financial problem on the horizon. For demographic reasons, the Baby Boom population bulge now beginning to move into retirement and the decline in number of workers relative to payment recipients, benefit payments will, not later than 2014, exceed income from payroll taxes. Until 2022, the gap will be filled by two other sources of income, interest on government securities in the Trust Fund and payments into the Trust Fund from income taxes paid on a portion of Social Security benefits. At that time, the Trust Fund will have to begin redeeming its government securities. In 2010, these securities were projected to last, if there were no changes in the funding of Social Security, to 2037. Thereafter, with the Trust Fund fully depleted, Social Security payments, relying entirely on payroll taxes, would drop to 78% of the expected amount.
There are two reasons to develop additional funding for the Social Security system on which nearly all of us rely. First, when the Trust Fund begins cashing in its securities, that addition to the expense side of the federal budget will add to pressure elsewhere in the federal budget. It is likely that current budgetary debates in Washington will repeat: should the budget be balanced by cutting military expenditures and tax credits for corporations and the wealthiest Americans, or by cutting health, educational, and other programs that serve the middle class and the working poor? Second, failure to prevent a 22% reduction in Social Security payments will thrust additional millions of elderly Americans into poverty.
Possible ways to keep the Trust Fund solvent indefinitely include repealing the tax cuts for the super-wealthy and raising, to the extent necessary, the current $102,000 ceiling on Social Security payroll taxes. Over time, of course, national priorities that determine the federal budget should be continually reexamined from both fiscal and moral perspectives.
Now then, what were you saying?
Clark M. Simms
Copake Falls
(518) 325-4376
