Social Security Crisis?
Social insurance, including Old Age, Survivors, and Disability Insurance (OASDI), Unemployment Insurance, and Workers’ Compensation (together, commonly called Social Security) is the cornerstone of U.S. social welfare policy. Inspired by the conditions wrought by the Great Depression in the 1930s, President Franklin Roosevelt championed a program that would cover both unemployed and retired workers. Out of these efforts rose the Social Security Act of 1935—the framework of the modern welfare state.
To the chagrin of conservative policy analysts, Social Security has taken on some of the characteristics of an income redistribution and/or public assistance program. Take for example the effects of the Social Security program on the lives of our nation’s elders. In 1969 before Social Security took cost-of-living adjustments into account the poverty rate for the elderly was double that of the general population (25% vs. 12%). In 2002 the poverty rate for the elderly was 10%. Without Social Security the poverty rate among the elderly would have been 52% in 1996. Again, to the dismay of conservatives, Social Security (a very successful and very popular program) has a strong redistributive effect, transferring resources from those with high life-time earnings to those with low life-time earnings.
It is helpful when examining the current presidential candidates’ positions on Social Security to understand the history and context surrounding the ongoing debate about the solvency of the program. Conservatives have successfully framed the debate around the presumption that Social Security is in crisis. Those on this side of the debate point to figures that suggest that by 2015, when many baby boomers begin to retire, OASDI benefit payments will begin to exceed taxes, and trust funds will be exhausted by 2042. The theoretical debate came to a head in 2005 when the Bush administration.
Those who oppose this viewpoint say that this crisis has been invented by fiscal and social conservatives intent on privatizing—some say undermining—all social programs. Economist and New York Times columnist, Paul Krugman, calls the so-called “crisis” a problem of modest size. Krugman points to a study done in 2004 by the Center on Budget and Policy Priorities which finds that the Social Security trust fund will run out in 2052 but that 80% of benefits could be paid at that time. So, there is a long-term fiscal problem, not a crisis.
It seems that honest effort at solving a long-term policy problem has been pushed aside in favor of partisan spin. On the right, analysts have trumped up the fear factor (sound familiar?) in a rush to privatize—ideologue scare-mongering says Krugman. Left leaning analysts have been so busy defending FDR’s triumphant, cornerstone welfare policy and lionizing anyone who dares analyze its long-term solvency, that they seem unprepared to offer solutions. I suppose this is policy de jour in Washington. Only Robert Reich, Professor of Public Policy at Berkeley and former Secretary of Labor under Bill Clinton, seems to get it right: he says Social Security doesn’t need an overhaul but it will need bolstering.
You’ve heard of Fantasy Football. Now for some Fantasy Policy Advising! (It doesn’t have the same ring, does it?)
The first thing I would do as policy advisor to Senator Barack Obama on the issue of Social Security is to gather Robert Reich, Paul Krugman and Senator Obama into the same room—let’s make that room the Publick House in Brookline, MA.
I want Senator Obama to pull from Krugman’s sharp critique of the Social Security doomsayers while learning from Reich’s even handed and practical policy prescriptions.
I would advise Obama to put the Social Security question in context. Obama should initiate plans that roll back Bush’s tax cuts, begin an orderly troop withdrawal from Iraq, and address the real fiscal crisis in America: healthcare costs. As Peter Orszag, the director of the Congressional Budget office, wrote in the New England Journal of Medicine in 2007, “The long-term fiscal condition of the United States has been largely misdiagnosed. Despite all the attention paid to demographic challenges, such as the coming retirement of the baby-boom generation, our country’s financial health will in fact be determined primarily by the growth rate of per capita health care costs”.
As for the fixable Social Security problem, Obama should start by lifting the cap on the percent of income subject to Social Security Payroll taxes. Currently the cap is at about $102,000 which creates a regressive tax policy. This is not the original aim of Social Security. Robert Reich recommends lifting the cap to approximately $120,000—not revolutionary, just progressive. The revenue from rolling back Bush’s tax cuts for the wealthiest, reclaiming the costs of missed opportunities from the costs of war, halting and shrinking out-of-control health care costs and creating a progressive Social Security payroll tax would go a long way to creating solvency.
2004 saw a perfect storm of sorts for doomsayers of the social security program: baby boomers’ eminent retirements, a shrinking younger demographic paying into the program, a republican house, and republican senate, and a zealous administration intent on dismantling the welfare state. President Bush was eager to cash in on his self-proclaimed “political capital”. Were it not for a war and a lame-duck presidency, this debate may have played differently. Let’s hope President Obama heeds our advice.
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