Just when you thought it was safe to go back into the water—the media has once again raised the specter of a “social security crisis.” Let’s be clear—there are powerful forces that want to see a cut in social security benefits and even more importantly the privatization of the system. And let’s be clear about something else—the social security system is not in trouble. For a refresher on why I say this you might want to read some past posts of mine, for example this one and this one.
The real tragedy is that those who want to slash the program never miss any opportunity to raise new fears, fears which are largely groundless but which also go largely unchallenged. For the latest just consider the headline of a recent New York Times article: “Social Security to See Payout Exceed Pay-In This Year.”
The article notes that in 2010 “the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.” And it also explains that this will happen because “payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax.”
But what does all this mean as far as the stability of the social security system? Those seeking to dismantle the social security system are using the fact that social security payouts will be larger than revenue from payroll taxes (this year) to suggest that the system is hurtling towards insolvency. However, the fact of the matter is that even this year the social security system will increase its surplus.
The reason is that the social security system owns trillions of dollars of U.S. government bonds that earn interest for the system. The social security system will use part of this year’s interest earnings to cover this year’s deficit (and might have to do the same next year as well). But the interest payments are so great that the social security trust fund will still continue to grow this year and the next as well, perhaps by as much as $100 billion a year.
In fact, according to Congressional Budget Office projections the social security trust fund will grow from $2.5 trillion in 2009 to $3.8 trillion in 2020.
Social security trustees had previously said that social security might run into trouble paying full benefits in 2041. Now they are saying that this might happen in 2037. That is right, we might have trouble 27 years from now. And then again we might not—a lot depends on the economy. And of course on our policies.
For example, social security is funded by taxes on wage and salary income. However, there is a limit to how much income is subject to that tax. Right now people pay taxes on their wage and salary income up to $106,800. Earnings above that level are not subject to the tax. This has become a real problem because of the explosion in income inequality. In fact, according to the Wall Street Journal, if we were to remove that income cap the social security system would be safe as far as one can see into the future.
In short, we have a manufactured crisis. It is up to us to make sure that those who want to destroy the social security system don’t succeed with their scare tactics.