House Republicans want to put Social Security on the chopping block in order to help reduce the long-term budget deficit, and the president seems willing to agree.
That we’ve reached this point reveals both the cravenness of the GOP’s demands and the callowness of the opposition to those demands.
In a former life I was a trustee of the Social Security trust fund. So let me set the record straight.
Social Security isn’t responsible for the federal deficit. Just the opposite. Until last year, Social Security took in more payroll taxes than it paid out in benefits. It lent the surpluses to the rest of the government.
Now that Social Security has started to pay out more than it takes in, Social Security can simply collect what the rest of the government owes it. This will keep it fully solvent for the next 26 years.
But why should there be a problem even 26 years from now? Back in 1983, Alan Greenspan’s Social Security commission was supposed to have fixed the system for good ― by gradually increasing payroll taxes and raising the retirement age. (Early boomers like me can start collecting full benefits at age 66; late boomers born after 1960 will have to wait until they’re 67.)
Greenspan’s commission must have failed to predict something. What?
Remember, the Social Security payroll tax applies only to earnings up to a certain ceiling. (That ceiling is now $106,800.) The ceiling rises every year according to a formula roughly matching inflation.
Back in 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of all wages covered by Social Security. That 90 percent figure was built into the Greenspan commission’s fixes. The commission assumed that, as the ceiling rose with inflation, the Social Security payroll tax would continue to hit 90 percent of total income.
Today, though, the Social Security payroll tax hits only about 84 percent of total income. It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top.
In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today, the top 1 percent takes in more than 20 percent.
If we want to go back to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000.
Presto. Social Security’s long-term (beyond 26 years from now) problem would be solved.
So there’s no reason even to consider reducing Social Security benefits or raising the age of eligibility. The logical response to the budget deficit ― as well as the increasing concentration of income at the top ― is simply to raise the ceiling.
By Robert Reich
Robert Reich, a former U.S. secretary of labor, is a professor of public policy at the University of California at Berkeley and the author of “Aftershock: The Next Economy and America’s Future.” ― Ed.
(Tribune Media Services)