On Aug. 14, 1935, in the wake of the 1929 stock market crash and the ensuing Great Depression, President Roosevelt signed into law the Social Security Act. Roosevelt felt that economic security legislation on a national scale was required as states and local communities no longer were able to provide the necessary financial resources for the unemployed and elderly, many of whose lifetime savings were wiped out in the Depression.
The scope of aid provided by the act broadened over time. Congress added benefits for dependents of retired or deceased workers in 1939 and, most notably, in 1956 added Disability Insurance. Today, the future of our Social Security system is being called into question, and this is cause for significant debate.
A discussion of such sweeping and radical proportions as the nation is now contemplating must focus on two basic concerns. First, what is the truth of the matter? Is Social Security set on a path that cannot be maintained? Second, what does this nation stand for? Does the most powerful nation on the planet shirk at meeting the basic needs of its elderly and disabled?
To answer the first concern, we look at just how strong the argument is requiring us to implement radical changes to the current system. Each year, the Trustees of Social Security publish a report on the current and projected condition of the funds over the next 75 years. This year’s report, released on March 23, found that:
- Three demographic trends threaten future benefits: the aging baby-boom generation, increasing life expectancies and, to a lesser extent, continued low fertility rates.
- Despite current annual cash surpluses, the viability of Social Security benefits will be challenged from 2010 though 2030, when the large baby-boom generation retires, draining surpluses and eventually causing a deficit.
- Costs of benefits are expected to grow steadily going forward due to increases in life expectancy.
- By 2017, program costs will exceed Social Security tax revenues.
- Full payments of benefits will be possible until 2041, at which time annual tax income is projected to cover only 74 percent of program costs.
These predictions have led the administration to characterize the Social Security system as being broken, and President Bush has declared the system’s overhaul to be his top domestic priority. The president has recommended rolling back the program’s scope and creating private investment accounts within the system.
This plan would entail allowing younger workers (those younger than 55) to divest as much as a third of their payroll taxes in order to open up their own stock and bond accounts. In doing so, the logic states, workers would gain the opportunity to create a nest egg for their future thanks to the potential for higher returns than they might otherwise receive from Social Security.
Yet creating private accounts would entail diverting a portion of current payroll taxes away from Social Security, thereby actually worsening the program’s future cash flow problems. Even Bush admits his plan will not in any way fix the solvency issues at hand. More worrisome still, the plan transfers the risk of success or failure to the individual.
If investing in equities would help the Social Security system, the trustees could do so on the nation’s behalf. There is absolutely no reason to turn this responsibility over to millions of unsophisticated investors. The trustees have access to the best and the brightest minds in the nation. The public would benefit from the economies of scale that the trustees could achieve, and the citizen would not shoulder the risk.
The gamble of private accounts holds no place within the Social Security system. There is certainly a place for personal investments in the form of private pensions, 401Ks and IRAs, but why tamper with the one guaranteed safety net everyone has: Social Security?
This leads us back to our original question of whether Social Security is in a state of crisis. I believe the answer is, “No.”
The predictions of the trustees can hardly be cast as a crisis; they are more aptly called indications of a trend. What’s more, upon further examining the underlying assumptions, there is enormous room for interpretation.
If, for example, you relied on the Census Bureau for predicted population growth figures rather than the trustees, the anticipated financial shortfall would be considerably reduced. What’s more, when looking at the ratio of the population older than 65 to those younger, it points to a rise from 0.90 today to an increase to 1.01 by 2080, indicating that more people will need to be supported by fewer workers.
This is not alarming, however, as during the 1950s, before women became so prevalent in the workforce, the nation operated with a ratio of 1.68 nonwage earners to wage earners without bankrupting Social Security. Finally, the trustees rely on a 1.6 percent average annual productivity growth rate, a rate assumption that is fully 20 percent lower than historic long-term productivity averages and completely alters formulas for the future. These are but a handful of literally dozens of variables used to create a sense of urgency.
How great are we?
Turning back to the second issue, we must ask ourselves: Are we a great nation? If so, what does that mean? Is it true that to those whom much is given, much is expected? President Roosevelt and his administration felt compassion for the scale of human suffering that persisted. They had been brought up in a tradition stating that the measure of a civilized people was how well they protected their weakest members.
In 1935, when we were aspiring to be the greatest nation on earth, we measured greatness not simplistically in terms of economic success or military might, but rather by the commitment to raise the lot of each and every citizen of the nation to a minimum standard of dignity.
How then should we adjust the Social Security system to ensure future benefits for all?
The trustees put forward the following scenarios in their annual report to restore the financial adequacy of the program for the next 75 years:
- Increase Social Security’s payroll tax from 12.4 percent to 14.32 percent.
- Cut all current and future benefits by about 13 percent.
- Some combination of the two.
Cutting benefits, however, should be out of the question. Last year, 48 million people received monthly benefits, according to the trustees’ report: 33 million were retired workers and their dependents, 8 million were disabled workers and their dependents, and 7 million were survivors of deceased workers. According to the White House, for one-third of Americans older than 65, Social Security benefits constitute 90 percent of their total income.
While raising taxes is never a popular action, surely it is worthwhile if necessary to ensure the viability of the social-welfare system that benefits those who are most in need. If raising the payroll tax from 12.4 percent to 14.3 percent seems too burdensome for workers, why not compromise by raising the level of earnings subject to Social Security taxes above the current rate of $90,000?
This would be a relatively painless way to shift the burden away from those in need to those who can afford the tax more easily, particularly in our current society in which the middle class is disappearing and the income gap between the “haves” and the “have nots” is growing ever greater. Is it not the definition of a civilized society that we protect and sweeten the lives of the “least of these?”
If there is a crisis or even a question, I for one need more data to prove it. But more importantly, this debate allows us the chance to address the greater questions of humankind.
Do we believe that civilized people protect and defend the weak? My faith teaches me that each and every one of us, even the lazy or the dull, was made in the image of our Lord and that he demands that I strive for universal individual human dignity.
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