Oh, guess what! It's "Social Security is going bankrupt!" Season again!At least every couple of years we experience a spate of articles on how Social Security is on the verge of some sort of catastrophe. It's running out of money! Or it will in a few years! It's unsustainable! Huge benefit cuts are just around the corner! We have to DO SOMETHING! OMG OMG OMG!
And it's always the same old, same old: the same old arguments and the same old predictions and the same old false comparisons. Several years ago someone said debating some climate change deniers was like debating a well-trained parrot that had learned about a dozen phrases it would spew out at random. It really is much the same here except there is even less variety in the arguments.
Our latest example comes from one John Csiszar, a financial planner writing on the "10 biggest problems facing Social Security."
Several of the problems are, frankly, temporary and based on conditions of the moment - for example, low interest rates. Those that aren't, are those same old, same old things that sound drastic but really mean little or nothing. But it's worth going through them so you can arm yourself against them when they come up, which they will because they always do.
One is that "life expectancy is rising" - actually, it hasn't these part few years, but let that pass as another hopefully temporary phenomenon - which makes for longer retirements and a bigger drain on the system. Except that greater life expectancy has also lead to people working longer and even putting off retirement voluntarily, not due to economic need. And many retirees work part time - I do - and so continue to contribute something to the system even during retirement and may even, if they earn more than a certain amount, see some of their benefits taxed back, as some of mine are.
A really deceptive argument is the one that goes "too many beneficiaries" due to the baby boomers. But the demographic bulge represented by that group was seen coming and in 1983 the tax rate for social security was raised specifically to create a surplus to deal with that coming bulge. Baby boomers were in effect pre-financing their own Social Security benefits.So when you hear about the SS account "going to zero" around 2034, it's that surplus that will have been spent, returning SS to the pay-as-you-go status it has been on for most of its existence, which now extends back over 80 years.
And let me here address something subtle: The talk about looming "massive benefit cuts" that are always part of these discussions. Your social security benefits are calculated on a number of your highest-earning years, which for most people are ones nearing retirement, simply assuming they have been getting raises during their working years. When you hear about the benefit cuts, they are cuts from projected benefits. But over time, wages tend to rise a little faster than inflation, which in turn means that over time, the initial benefits for new retirees, measured in real terms, that is after accounting for inflation and so a measure of how much stuff you can actually buy, those initial benefits gradually provide a somewhat higher standard of living that the initial benefits for previous retirees.
Which means that by the time these benefit cuts come, the result could easily mean that new retirees have the same standard of living - can buy as much stuff - as people retiring now can. That's not something to be welcomed, certainly, but it is even further from the disaster it's intended to sound like by making you think they are cuts from the current level of benefits, not from the higher projected ones.
Getting back to the arguments in this article, another deceptive one is the "not enough workers" claim. This is that the worker-to-retiree ratio is shrinking. Sixty years ago there were five workers for every person receiving SS. More recently it had been down to 2.8 workers per beneficiary and now, according to Csisza, it's down to - gasp! - just 2.1.
Sounds dreadful - except that the figure itself is useless. Workers don't just support retired people, they support all non-workers, including their children and their spouse or partner if they don't work and in some cases others. Even as the number of retirees is growing, family size is shrinking. So over these decades, even as the ratio of workers to retirees is expected to go down, the ratio of workers to non-workers is expected to go up: more workers per non-worker.
Sixty years ago, there were 1.05 workers per non-worker; by 2030, demographic trends say there will be 1.27. So by the logic of the argument, we will be better able to support Social Security in the future than we are now!
The burden on workers will be much that same, it's just that in effect, some portion of that burden will have shifted from supporting their children to supporting their parents.
But then of course, the real issue is Congressional stalemate, the refusal of politicians to do what's needed to fix this!It is true that there hasn't been significant Social Security legislation since the 1980s, but a good part of the reason for that is that the only solutions usually offered - and the only ones offered here - are ones that just dump the burden on workers: Raise the retirement age (which in fact has already been done)! Cut benefits! Raise the payroll tax!
Want to know how to protect SS for the next 75 years, which is as far out into the future the trust fund managers' projections go? And do it without harming the interests of workers? First, remove the cap on the SS wage base. Right now, any earned income you make over $142,800 a year is not subject to SS payroll taxes. So someone making, say, 1.4M a year pays the same SS tax as someone earning one-tenth as much. Such a move would only affect the richest 8% of Americans. Which is why, of course, it hasn't been done.
But I'd go even beyond that. Remember, that tax applies to earned income. Income from passive sources, such as dividends, interest, pensions, or income from a business in which you don't have an active role, are not subject to payroll taxes. Frankly as far as I'm concerned, if you can spend it the same, it can be taxable the same. Which again would primarily affect the richest among us - which is why it isn't even on the table.
Bottom line - an appropriate expression here - SS may need some tweaks and fiddles - and it has been tweaked and fiddled with a number of times over its history - but it is not going bankrupt, not about to collapse, not in need of major surgery, and for young folks, yes it will be there for you when the time comes so long as we don't let the economic elites screw you over.
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