The truth about Social Security

As I touched on briefly yesterday, one of President Bush's major campaign proposals was the privitization of Social Security. During a good portion of the closing days of his campaign, the President told Americans the lie that Social Security was in trouble and that only he, God's appointed potentate, could save it.

President Bush has made it a practice to foist his Ponzi schemes on the unsuspecting and gullible American electorate. From his under-funded No-Child-Left-Behind, gutting of important environmental safeguards, the war in Iraq, to his disastrous tax cuts for the wealthy, this president has been anything but a visionary leader. At times, he's appeared more like the pied-piper leading America's working class off the proverbial cliff!

For the uninitiated, let's just take a brief look at Social Security. It was created by the Roosevelt Administration in 1935 as part of the New Deal. The amount of benefits in retirement is typically based on the total amount of accumulated Social Security Income over a beneficiary's working career. Basically, the amount of taxes taken out of your paycheck, matched by your employer's contribution.

Social Security's official name is Old-Age, Survivors, and Disability Insurance, or (OASDI). It is intended to be an insurance program for workers who are disabled, retired, or who die prematurely. It is there to provide worker's families from potential loss of income.

By offering basic benefits, SSI helps retired workers, disabled workers, or the survivors of deceased workers to stay out of poverty. In 2000, 40 percent more households over the age of 65, including almost 33 percent of elderly Hispanics, would have been living in poverty if not for Social Security.

Social Security's benefits provide only a basic minimum. The average monthly benefit was $851.40 in 2002.

So, is Social Security in trouble and in need of our fearless leader's helping hand? Well, if you read some of the articles by the press, they would lead you to believe than none of us currently working will see a dime of benefit come retirement time. Our sycophantic journalistic corps, rather than researching the issue (as I'm sure they were taught at Columbia, NYU, or the other bastions of journalistic preparation), have consistently relied on the hand-feeding of members of the administration for their background to stories on SSI. As a result, the average American has come to believe that something drastic needs to be done to save our retirements--like privitization.

Story after story, news feature after news feature have scared Americans into believing that "Social Security is going bankrupt....it's coming apart at the seams", or assigned a date; usually 2042, as the year that "Social Security will go broke."

Since Americans are a trusting people, of course they are going to be concerned when they are constantly told by our fawning press that Social Security is messed up and needs some fixin'.

In point of fact however, Social Security is actually doing just fine. What? How could that be? Our President says "it broke and need fixin'", so we need to listen to El Bushco, right?

Who's right about Social Security--those in the President's camp, who say it's going bankrupt in 2029, or 2042, or those who say it's fine and needs little or any tinkering to remain solvent?

Consider these facts:

For now, Social Security is taking in more through the payroll tax than it is paying out in benefits. Lots more!

In 2003, income to the Social Security trust fund, including interest earned on the accumulated surplus, totaled $632 billion. Outlays, including administrative expenses, were $479 billion. That left an annual surplus of $153 billion, or about four months worth of benefits. At the end of the year, the trust fund had more than $1.5 trillion — more than three years' worth of benefits. Baby boomers, who will start to become eligible for partial benefits in 2008 and full benefits in 2012, are about to turn this equation on its head.

Today there are 3.3 workers for each retiree; by 2040, there will be 2. Social Security's board of trustees — three federal officials and three knowledgeable private citizens — estimate that benefits will overtake revenue in 2018. The program will be able to pay scheduled benefits only by drawing down its surplus. In 2042, the trustees estimate, Social Security will become "insolvent." The surplus will be exhausted, and annual payroll tax revenue will be the only source of cash. It will be enough to pay only about three-fourths of promised benefits. Neither benefit levels nor taxes will be the same then as they are today. Benefits rise annually with price inflation; initial benefits are determined by wage history. Wages earned early in the recipient's career are adjusted for subsequent inflation. But this adjustment is calculated by using wage inflation, not price inflation. Wages have outpaced prices over the years, and wage growth between now and 2042 is projected to exceed price growth by more than 25%. So, even if Congress did not touch Social Security's benefit formula through 2042, a 25% benefit cut when the surplus ran out would still leave benefits slightly higher than they were now — even after adjusting for price inflation. That, according to opponents of private accounts, is not exactly a formula for disaster. On the revenue side of the ledger, the Social Security payroll tax rate — 6.2%, matched by an equal tax on the employer — has not changed since 1990. But the maximum wage on which the tax is levied, $87,900 in 2004, rises annually with wage inflation.

From Joel Havemann's article in the Los Angeles Times, "Many Democrats accuse Republicans of intentionally making Social Security's future look bleaker than it is so that they can more easily sell their privatization proposals. The Republican agenda, they say, is more ideological than financial: the promotion of Bush's 'ownership society'."

According to Dean Baker, co-director of the Center for Economic and Policy Research, there is "an incredible misunderstanding of the basic problem. The public thinks the program will disappear in 10 to 20 years."

The reality?

According to Baker, an analyst who opposes private accounts, "if Congress acted now, it could guarantee Social Security's solvency for the next 75 years with a tax increase of less than one-quarter the size of the one enacted in the 1980s."

That doesn't sound like a crisis--it sounds like an opportunity for Congress to do their job and stop playing around with one of the best and most beneficial programs of our social safety net.