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Kent Treiber: Make Social Security whole for the long run

My guest column in July covered why the vast majority of our citizens will need, or at least benefit from, Social Security old-age benefits.

There are those who would like to do away with these benefits. Let’s discuss some of their arguments:

Social Security is an entitlement (with the implication that this is bad). — Yes indeed, people who have paid 40 calendar quarters or more of payroll (OASDI) tax are entitled to receive a Social Security benefit at retirement age. The amount they receive depends on how much payroll tax they pay. Other programs that are often called entitlements — like welfare, Medicaid, and food stamps — are paid from general tax revenues; Social Security is completely funded from the payroll tax (which is paid by you and your employer).



You pay over your working lifetime, receive benefits when you retire. How is this a bad thing?

Social Security is a Ponzi scheme. — This is a simplistic smear. It’s true that shortly after Social Security began, my father’s payroll taxes were used to pay benefits to old retired people who qualified. In turn, my payroll taxes paid for old retired people, including my father. My Social Security benefits are currently being paid by the payroll taxes of current workers. If Social Security had been structured like a giant group 401K, people who retired in the 1940s through the mid 1960s would have had few benefits and elderly poverty levels would have stayed very high. The system has been working well for over 80 years.




Social Security is going broke. — Social Security staff produces an annual report on current and projected future status of the program. Per the 2016 report, without any changes, Social Security can pay full benefits for the next 17 years, until 2034. Without any changes, beginning in 2034, they’ll only be able to pay about 79 percent of benefits. By 2090, they will still be able to pay 74 percent of benefits. Problem? Yes. Broke? No. The future need to pay less than full benefits has been known for years; I’ll discuss possible fixes below.

Social Security impacts the national debt. — I dealt with this in my previous column, but let me summarize. By law, Social Security can only spend money that originated from the payroll tax. It cannot borrow, thus it cannot contribute to the national debt. The discretionary budgeted part of the government has borrowed money using Treasury bonds for years, creating our deficit. Starting in 1984, some of their borrowing was from Social Security using Treasury debt securities. Blaming Treasury bond or Treasury debt holders for the deficit is a either a bad joke or some very creative accounting.

Social Security dominates the federal budget. — Social Security is about 23 percent of total federal spending. It’s a huge program, but it’s financially self-contained: money comes from the payroll tax, money goes to beneficiaries. Calling it part of the budget is an accounting exercise; Congress does a budget process that allocates income tax money for what’s called the “discretionary budget,” which does not include Social Security.

So how can we prevent Social Security benefits from being cut down the road? The system had financial problems back in the early 1980s. A bipartisan committee under President Reagan came up with solutions that fixed the system for decades. We need to do this again; the sooner we do it, the smaller the changes need to be. A series of small changes is my preference, none of which will hurt too much:

Increase the rate at which the earnings limit on payroll tax is raised. For 2017, earnings over $127,200 have no payroll tax. In return for taking more tax from higher earners, commit that there will be no future means testing for benefits: if you pay in, you’ll get paid.

Slowly increase the payroll tax from 6.2 to maybe 6.5 percent.

Slowly increase the full retirement age, but only as life expectancy increases.

There are proposals to “fix” the funding shortfall by reducing benefits. Social Security benefits are not high now; reducing them would be painful for current and future generations. And really, how do you call reducing benefits now a solution to reducing benefits in 2034?

I’d suggest that we all demand that our Congressperson and Senators make Social Security whole for the long run.

Kent Treiber lives in Penn Valley.


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