Social Security: a brilliant system
The 76th anniversary of Social Security has arrived, but rather than celebrating the program that provides more than 50 million people with annual benefits, some people are questioning its value as a critical American institution.
Opponents tout rumors regarding sustainability and the toll on our government as fact, and some are falling for it. The reality is that Social Security is one of the most successful programs in history.
On Aug. 14, 1935, President Franklin Roosevelt signed the Social Security Act as part of his New Deal program in response to an alarming poverty rate of over 50 percent among senior citizens.
The Great Depression and staggering unemployment resulted in poverty for old and young. Advancements in medicine and living conditions meant that life expectancy increased. People were moving from the countryside to cities where tighter living conditions undermined the concept of the extended family.
The elderly could no longer rely on family homes in their old age. The burden of living fell for the first time on them, even after retirement. The Social Security Act, originally called the Economic Security Act, provided unprecedented federal aid to these people.
About a decade later, after World War II, another change came when parents began to have children at unexpectedly high rates, thus creating the Baby Boomer generation.
Now these children are adults and since 2008 they have started to collect Social Security. There are concerns that demands from this generation’s retirement will be too much for the Social Security reserves to handle.
But baby boomers have been paying into Social Security since they began work in the 1960s. Much of the money they will use is their own. Of every dollar contributed to the Social Security fund, over 99 cents is returned directly to the people, with the last 1 percent covering the program’s minimal operation fees.
Social Security protects the disabled and keeps 40 percent of America’s elderly out of poverty. For many senior citizens, Social Security is their only guaranteed source of income. Among Americans over the age of 65, Social Security is an average of 63 percent of the household income.
The manner in which Social Security is funded has not changed. The people who anticipate collecting Social Security are the people who fund it through payroll and other employment taxes. Currently, Social Security is experiencing a surplus of $2.6 trillion, which is anticipated to grow to $3.67 trillion by 2022.
Social Security is not “broke” or in danger of becoming so. It began to prepare for the baby boomers’ retirement 25 years ago, collecting additional payroll taxes. And when the baby boomers have collected their checks, there will still be money coming in to support their children and grandchildren.
In 2082, 71 years from now when many of our own children will be receiving Social Security, the current taxes will still be enough to pay for 75 percent of their anticipated benefits.
Social Security may require periodic adjustments in order to maintain a balance, particularly now as lower birthrates and higher unemployment have fewer people paying into the system. There are two options for balancing the system: Pay lower annual benefits (or raise the retirement age) or, raise more revenue.
The second option makes more sense — only a small, gradual adjustment to the payroll tax rate that employers and employees pay is necessary. Currently each party pays 6.2 percent of the employee’s income. Raising that rate to 6.7 percent would eliminate half of Social Security’s perceived shortfall.
Another way to raise revenue is to remove the cap on income taxes. The cap is set at $106,800, which means a person with an income over that amount only pays Social Security taxes on $106,800 of what they make.
Removing this cap and requiring the wealthy to pay taxes on all of their income would eliminate 99 percent of the future shortfall and make Social Security the social insurance system it was intended to be. American investor and the third wealthiest person in the world, Warren Buffett, is an advocate for this solution, which he calls a “shared sacrifice.”
Citizens are often told that Social Security is adding to the debt. But Social Security is not part of the federal budget. Social Security is independently funded by those who will eventually become beneficiaries. Since it is self-funded, there is no way it could contribute to the national debt. The confusion surrounding this issue makes it easy for fear mongers to misinform the public.
In reality, the Social Security fund is linked with the federal budget because of an alteration made by Congress more than 30 years ago. Originally, Social Security taxes went into the Social Security Trust Fund. Congress “raided” the Trust Fund and now Social Security taxes are used by Congress for general expenses. In return, Congress gives treasury securities in an exchange of assets that the U.S. government must eventually pay back into the fund.
Social Security is a remarkable program by any assessment. The unfounded fear and misinformation surrounding Social Security are nothing new. President Roosevelt had to deal with them as he worked to enact the law and afterward, even as its positive effects became apparent. Social Security continues to prove itself successful through our country’s economic and social ups and downs.
Sage Hahn is a recent graduate of Northwestern Regional High School in Winsted who has worked as an intern in the Office of the Community Lawyer for the past three years. She is attending Bennington College in Vermont in the fall.