Smart Bombs: Social insecurity is rising

Another day, another holler about Social Security.

I’ve gotten some phone calls lately from readers who wonder why the media are characterizing Social Security as one of the big drivers of rising deficits. They have a point.

Because of the Great Recession, we have reached the point where payments to beneficiaries are outpacing Social Security tax collections a couple of years earlier than projected. But from the time the program was rescued from an actual crisis in 1983 with an increase in the payroll tax, it’s been known that this would occur. Problem is, many members of the media are treating this as a horrifying discovery, and some politicians and pundits have seized on this “news” to suggest that Social Security is unsustainable.

The 1983 architects of reform knew all along that there would be this demographic wave of baby boomers, so they made sure that Social Security ran surpluses. But politicians being politicians, they saw a huge pot of money to tap for spending or tax cuts. So they began borrowing it. Still, there remains a $2.5 trillion Social Security surplus in the form of U.S. Treasury notes. Social Security adds to the deficit only to the extent that government redeems these notes.

The problem isn’t that Social Security is a Ponzi scheme; it’s that government must now come up with the money it should’ve come up with over the past three decades to pay for non-Social Security spending and forgone revenues in the form of tax cuts. But even now, the supposed crisis is overblown. Social Security will melt down only if the federal government reneges on its debt obligations for the first time in history. For this to happen, politicians would have to buck polls that show the program to be vastly popular.

Know of many politicians this brave? Me either.

So it stands to reason that they will come up with solutions that can be phased in over the next two to three decades to put the program on firmer footing. Social Security has enough money to pay beneficiaries 100 percent of their expected benefits until 2037 if no changes are made. At that point, it has enough to pay out 75 percent of benefits for many decades. Again, none of this is really news. It’s in the annual Social Security reports.

Robert Reich, a labor secretary in the Clinton administration, was once a trustee for Social Security. He notes in a recent column that the 1983 Greenspan Commission reset the payroll tax so that it accounted for 90 percent of all wages covered by Social Security. The tax itself applies to the first $106,800 of earnings; any amount above that eludes the levy. This “ceiling” is adjusted for inflation.

Reich writes: “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.”

The Greenspan Commission didn’t anticipate this widening income inequality, but if the country wanted to return to the 90 percent target, the amount of annual income subject to the payroll tax could be lifted to $180,000 and Social Security’s long-term woes would be largely solved.

So why would politicians of all stripes want to start discussions about cutting benefits and raising retirement ages for all future retirees rather than raising the income ceiling on a relatively tiny subset of Americans?

That’s the $2.5 trillion question. I’m sure you can think of some answers.

Math + Politics. I got this poll question in my personal e-mail from U.S. Rep. Cathy McMorris Rodgers’ office:

What is the best way for Congress to address the $14 trillion national debt:

Pass the Continuing Resolution which cuts $100 billion in federal spending.

Vote against the Continuing Resolution. We should not be cutting federal spending.

Other.

Unsure.

I’m pretty sure that the best way would include a much larger number than $100 billion, but even that figure is an illusion. The $100 billion in cuts proposed by House Republicans is subtracted from an old Obama administration budget request that was never adopted. When subtracted from the real budget, the reduction amounts to $61 billion.

So, put me down for “Other.”