New Attacks on Social Security

Social Security is threatened – NOT because it is going to “run out of money,” but because many of its defenders are losing sight of the principle it’s based on.

Real briefly, here’s how it works. Almost everyone who is employed pays a social security tax, which is a percentage of their paycheck up to an income cap. This money goes into the social security trust fund, where it is used to pay benefits to those currently receiving them. (Some state government employees do not pay the tax and do not qualify for the benefits.)

So far, the payments have always covered the benefits. However, as the baby boom generation begins to collect, the ratio of those paying taxes to those collecting gets lower. People are living somewhat longer, as well. As a result, the trust fund will run out of money in, perhaps, 30 years. (Maybe more – they used to predict 2030, now they’re saying 2043.)

This is a problem that has to be fixed, but the fixes are simple. We can eliminate the income cap (it’s about $100,000 a year), so that people pay the social security tax on all their earned income. Or we can cut benefits a little (most likely by adjusting the cost-of-living adjustment), or we can raise the tax rate. I favor the first, as it is fairer, but any of them will work financially. 

However, we now have a new problem: progressives are calling for reducing the social security tax. In fact, it was cut by 1/3 as part of the budget deal between President Obama and the House Republicans in the lame-duck session of Congress last December (2010); last night, Obama called for extending the cut (he calls it the “payroll tax holiday,” presumably because he does not want to highlight the link between the tax and social security benefits), and making it apply to employers as well as employees.

This morning, writing on the progressive website Demos.Org, Robert Frank calls for eliminating the social security tax altogether, and funding social security benefits with other revenues.

This is a terrible idea. Right now, social security has widespread support, for two reasons:

  1. Everybody gets it.
  2. Everybody pays for it, so basically you are getting benefits because you paid for them.

If your benefits are not linked to your payments, social security will come to be seen as a charity, rather than a pension. It will come under even more attack, and it will be more difficult to resist those attacks because it will be just one more government handout.

Social Security has nothing to do with the deficit, because the benefits are paid from the trust fund, not from general revenue. There is no reason at all to link it to any deficit reduction deal. We should not change that in pursuit of the chimera of a more equitable tax system.