“Social Security is in trouble because the huge baby boom generation is about to retire.”
Makes perfect sense.
Except that Social Security was last made solvent by following the recommendations of the Greenspan Commission in 1983. The youngest baby boomer was already 18 years old in 1983! By definition there could have been no post-war baby boomers (1945-1965) born since then. So how could they be responsible for the Social Security shortfall that has occurred since???
What Has Changed?
What has changed since 1983 to alter the actuarial assumptions that projected a balance between Social Security revenues and expenditures for 75 years?
If the media took the time to actually read the actuaries reports of the Social Security Trust Fund, they would find that not only is demographics not the problem, but changes in demographics actually improved the Fund’s solvency (more immigrants paying into the system than projected).
It’s the Revenues, Stupid!
In fact the problem is not with increased expenditures at all. The shortfall is in revenues. A report by Josh Bivens of the Economic Policy Institute finds that two recent economic trends are responsible for most of the revenue shortfall.
They will sound familiar to readers of this blog: growing income inequality and slower than expected growth in average (real) wages.
Lower Wages and Growing Equality to Blame
The Social Security shortfall, then, is a product of the same economic attacks that are threatening the middle class in every other part of their lives. It is not factors unique to Social Security that trouble the program, but policies intentionally designed to strengthen big corporations and weaken the middle class’s ability to defend its standard of living: free trade policies, attacks on workers’ ability to form unions, creation of a pool of cheap labor, tax cuts for the wealthy, etc.
Among other consequences they have reduced the wages of working people and thus the amount they pay into the fund; and, as the rich took a greater share of the economy, more of their income was above the salary cap so taxes on that money was lost the SS Trust Fund.
1) To quote the report,
“In 1983, the SSA Trustees forecast that real-wage growth in the far future of the U.S. economy would be 1.5% per year. By 2005 they have ratcheted down their real wage forecast to 1.1%.”This accounts for more than 20% of the shortfall.
2) Likewise, in 1983 the earnings cap on Social Security taxes (and benefits) [the level above which earnings are not subject to the payroll tax] was set at a level that covered 90% of all earnings. By design, the cap has risen in tandem with average wages throughout the economy. [$92,500 in 2006]
But everyone has not risen together. The rich got richer, reaping most of the economic gains of the past six years, and the middle class got squeezed. Over the years 2000-2004 the cap covered only 85% of earnings. It is projected to eventually cover only 83.2% of earnings.
Raise the Cap: Capture More Income From the Wealthy
If the cap were reset today to maintain coverage of 90% of labor earnings, it would eliminate another 40% of the shortfall. Removing the cap entirely eliminates the funding gap entirely.
So the solution to the Social Security shortfall is part and parcel of the solution to the pattern of growing inequality of wealth and income. Not an easy problem to solve, but one that cannot be avoided in any case.
Greenspan the Ideologue
But I can’t sign off without a word about Alan Greenspan. The former Fed Chairman and economic guru so loved on Wall Street knows the Social Security problem intimately. It was his recommendation to raise payroll taxes on lower and middle income Americans and to cut benefits that brought the system to solvency in 1983. So he knows where the money in the Trust Fund came from.
Yet on March 15, 2005, he told Congress that “the mounting financial pressure of a wave of retiring baby boomers is so great that cuts in future government retirement benefits are all but inevitable.” [http://money.cnn.com/2005/03/15/commentary/column_hays/greenspan_socialsecurity/index.htm]
Greenspan: Reverse Robin Hood
So get this: workers build up a trust fund by deductions from their paycheck. George W. uses the money to give tax breaks to the wealthy. But instead of taking this money back and using it to fund Social Security like it was intended, ol’ Al’s “solution” is to let the wealthy keep the workers money and cut the workers benefits to make up for it.
This is the kind of advice Congress has been getting from the Greenspans of the world. It’s time to stop the lies and stop the hemorrhaging of middle class living standards.