Social Security
Introduction
-Social Security is a form national wage insurance.
-Prior to Social Security, older people generally had insufficient savings to last until death.
-Prior to Social Security, most programs addressing worker insecurity and old-age dependency existed at
the state level.
-The Social Security Act of 1935 established two insurance programs: Unemployment Insurance and Old
Age Insurance.
-The Social Security Amendments of 1939 addressed the economic insecurity that the death of a working
parent could leave children and spouses. The Amendments created survivor benefits.
-Today, more than 44 million retirees, spouses, and their survivors collect a monthly benefit.
-The Social Security Amendments of 1956 established disability insurance protections for workers aged
50 to 64. In 1960, disability insurance protections were extended to all workers.
-In 1965, Medicare and Medicaid were added to the Social Security Act.
-In 1972, automatic, annual cost-of-living adjustments were added to Social Security benefits.
-Social Security does more to rectify income inequality and prevent poverty than any other program.
-Social Security provides the nation’s foundation for what should be a secure and dignified retirement
after a lifetime of work.
What is Social Security?
-Social Security, Medicare, and Medicaid are referred to as “entitlements” in budgetary language, but
politicians opposed to these programs use the word “entitlement” to imply that those receiving benefits
are receiving “handouts” that they don’t deserve or that other people pay for. In truth, everyone pays into
these programs and everyone receives benefits. Entitlements are not means-tested welfare programs.
-Social Security is an insurance program that protects against the loss of wages due to disability, death, or
old age.
-Social Security is not a replacement for personal savings, it is insurance. An individual does not know
how much money they need to save for the future, but Social Security guarantees a minimum income to
prevent poverty.
-The average retiree’s benefits roughly equal a full-time salary on minimum wage ($15,500).
-Social Security is group insurance, supported primarily by premiums paid by workers and their
employers.
-Each month, 165 million workers make Social Security contributions.
-The full retirement age for Social Security was 65, but changes enacted in 1983 raised it to 67. Workers
may claim benefits as early as age 62, but their benefits will be reduced as a result.
Benefits of Social Security
-The poverty rate of persons 65 and over dropped from 35% in 1959 to 9% in 2012.
-Social Security lifts roughly 22 million out of poverty every year.
-55% of persons receiving Social Security are women. Because women live longer than men they are
more vulnerable to outliving their savings. Without Social Security, the poverty rate among older women
would rise from 11% to 48%.
-Social Security is crucial for minorities because they tend to make less money and are less likely to have
employer-provided retirement programs.
-Social Security lifts more than 1 million children out of poverty every year.
-For current workers, knowing that one’s parents have Social Security often frees up the generation in the
middle to direct more family resources toward their own children.
Retirement Crisis
-Retirement can be conceived of as a three-legged stool consisting of Social Security, employer-provided
pensions/401Ks, and personal savings.
-In recent decades, pensions have disappeared and been replaced by 401Ks, which can suffer severely
during financial downturns such as the Great Recession of 2008.
-Also, stagnant wages combined with rising health care, college, and housing costs have resulted in less
personal savings; the result for many seniors is that Social Security will be their main source of income.
-Due to the looming retirement crisis, Social Security is going to become even more important for many
retirees.
-Debates about Social Security benefits and funding should take this reality into account.
-Many assume that Social Security benefits need to be cut or that the retirement age needs to be raised,
but many also seem to forget that Social Security benefits have already been cut and the retirement age
has already been raised.
-The Social Security Amendments of 1983 cut benefits for those born in 1960 by about 13% and raised
the retirement age to 67 for those born after 1960.
-Also, out-of-pocket costs under Medicare are expected to rise, which is an indirect cut in Social Security
benefits for retirees on a fixed income.
-Debates about Medicare benefits and funding should take this reality into account.
-Some argue that Medicare benefits should be reduced or that the program should be turned into a
“voucher” system where individuals pay all costs beyond a defined benefit amount, which would shift
further costs onto low-income seniors.
-Debates about these entitlement programs usually focus on cutting their costs, but many people who have
paid into the programs are going to be relying on them very soon.
-Both Social Security and Medicare are very efficient and successful programs, which has led some to
argue for increased funding and expanded benefits instead of cuts.
Paying for Social Security
-Income inequality has been a major problem in the United States twice: the Gilded Age of the late 19th
century that ended with the Panic of 1893 and the Roaring Twenties that ended with the Stock Market
Crash of 1929 and subsequent Great Depression. Income inequality has been rising for the last three
decades in the lead up to the Great Recession of 2008. Some argue inequality is a problem again today.
-Economic inequality undermines the funding sources of important programs like Social Security and
Medicare.
-For example, not only does failure to raise the minimum wage result in less purchasing power for lowwage workers but it also reduces the amount of revenue being collected in payroll taxes.
-In 1977, when Congress enacted annual automatic adjustments to the maximum amount of income
subject to the Social Security payroll tax (currently $118,500), it intended that the maximum should
capture 90% of all wages earned. Today, it captures about 82% of all wages, which means that in 2014
alone roughly $60 billion that should have gone to Social Security did not.
-In addition to rising income inequality reducing Social Security revenues (because income above the
maximum is not taxed, and most growth in income has been at levels far above the maximum), the
relatively flat growth in wages means that Social Security benefits for the average American are going to
be less than they would have been had wage growth been distributed more evenly (everyone’s wages
going up). Benefits are based on earnings, so if wages do not go up then benefits will be less, as well.
-Some have proposed increasing Social Security benefits for everyone by 10%.
-The automatic cost of living adjustments (COLAs) assure that Social Security benefits maintain their
purchasing power.
-The current Consumer Price Index used to determine COLAs is inaccurate for senior citizens.
-Those proposing benefit cuts promote the Chained Consumer Price Index (Chained-CPI) as a better
index, while those proposing benefit increases promote the Consumer Price Index for the Elderly (CPI-E).
-Some have proposed eliminating Social Security benefits for millionaires and billionaires, but doing this
would produce minute savings since their benefit levels are already low in relation to their contributions
as a result of Social Security’s progressive benefit formula.
-Furthermore, converting Social Security into a means-tested program would create enormous
administrative costs that currently do not exist and abandon the idea of Social Security as insurance
(everyone pooling risks together). In other words, it makes sense for the wealthy to remain eligible for
Social Security benefits because that is what makes the program so popular (everyone pays into it,
everyone benefits from it).
-Social Security is an expensive program, but its cost relative to GDP is not projected to increase
significantly. In 2014, the cost was 4.94% of GDP and by 2085 it is projected to be 6.08%.
-Today, about 13% of the U.S. population is over the age of 65. By 2050 the percentage is expected to
increase to 20%.
-The Social Security payroll tax has not been increased since 1990.
-The Social Security payroll tax could be subjected to a higher maximum income (above $118,500).
-Raising the tax rate (currently 6.2% for employees, 6.2% for employers) and raising the maximum
income would bring in substantial revenue for the program and enable an expansion of benefits.
-Some have proposed a millionaire’s tax that would create a new tax bracket that is 10% higher than the
current highest rate of 39.6% for income above $1 million. A new tax rate of 49.6% on income above $1
million could be used to provide additional revenue to Social Security.
-Some have also proposed a financial speculation tax that could contribute additional revenue to Social
Security.
-While some would like to privatize Social Security by diverting the money paid into the program into
401Ks instead, others have proposed incrementally expanding the benefits.
-While many assume that benefit cuts and raising the retirement age are unavoidable, others have pointed
out that plenty of solutions exist to raise additional revenue if the American people want to fully preserve
the program or expand it.
-The United States is the only industrialized country in the world without paid family leave (maternity,
paternity, etc.). A modest payroll tax could create paid maternity leave through Social Security. Everyone
would contribute to the program (ex: 1% of wages) and everyone would be eligible to take paid leave
from work to stay home with a newborn or care for a sick family member. Currently, an employee can
take 12 weeks of unpaid leave, but most people cannot afford to do so. Creating paid leave would enable
new mothers and/or fathers to stay home with their newborns for 12 weeks (if they chose to) or enable
someone to take 12 weeks off to care for a spouse or parent who is sick or dying.
-Social Security exists because the American people decided that the elderly should not live in poverty.
-There is nothing preventing the American people from deciding that additional situations in life are
worth paying to avoid: choosing between a child, spouse, or parent and money.
Opposition to Social Security
-Opponents of Social Security have always considered it “closet socialism” and they have constantly tried
to undermine Social Security for ideological reasons. Early opponents were considered “fringe” and their
ideas did not gain much traction. Since the 1970s, millions of dollars have been spent by wealthy
opponents of Social Security in order to attack the program. They fund think tanks and give contributions
to politicians who will lead the fight to undermine the program.
-Opponents want to convert Social Security from a wage insurance program to a private savings account
program.
-Opponents claim that Social Security is in crisis and that young workers will not receive benefits. The
truth is that Social Security will have revenue as long as Americans are working. Critics argued that
young people in the 1970s and 1980s wouldn’t receive benefits and they are about to in 10 years! Today’s
young people will pay into the system and receive benefits just like everyone else.
-Opponents claim that Social Security spends more on benefits than it receives in revenue. The truth is
that once you add in Social Security’s investment income and revenue from the taxation of benefits Social
Security has a surplus not a deficit.
-Social Security does not add any money to the national debt because Social Security has no borrowing
authority. The national debt is from annual budget deficits, not Social Security.
-The long-term entitlement spending challenges exist almost entirely within health care. Medicare and
Medicaid are becoming more expensive because the overall health care system is inefficient and
expensive (not because the programs themselves are wasteful).
-Opponents claim that Social Security is unsustainable because of demographic changes. The worker-toretiree ratio being much less than it was when Social Security was created. While it is certainly true that
the worker-to-retiree ratio has gone down, it has remained the same since the mid-1970s (3 workers for
every 1 retiree). Social Security has been providing benefits for four decades at that ratio.
-Opponents claim that since average life expectancy has increased, the retirement age should be raised.
The average life expectancy of 63 when Social Security was created included much higher child mortality
rates than today. In other words, large numbers of people in the 1930s and 1940s were living well beyond
the retirement age of 65.
-Today, women in the bottom half of the income scale have seen their average life expectancy after the
age of 65 decrease. Furthermore, the argument that workers can now work longer than before does not
apply to those workers who have physically-demanding jobs. Blue-collar workers are just as in need of
retirement at age 65 today as they were in the past. The argument that everyone is living longer and
should therefore work longer is an argument that only makes some sense when you assume the worker is
an upper-middle class white-collar male (which is typically who makes the argument).
-Opponents claim that Social Security is a form of “generational theft” whereby today’s young are forced
to support the elderly, but this argument ignores the fact that Social Security is also the nation’s largest
children’s program. Social Security provides benefits directly or indirectly to 11% of America’s children.
Survivor and disability benefits are crucial for the children of those who have died or are unable to work.
-Some opponents claim that illegal immigrants receive Social Security benefits without paying into the
system. That claim is simply false.
-Recent opponents have focused on Social Security’s disability benefits. The media has reported that the
number of workers receiving disability benefits is 8.8 million (the highest ever!). The Social Security
Administration, however, has known for years that the number would increase due to the fact that as the
Baby Boom Generation aged there would be more people eligible for such benefits (the number is higher
because the number of workers is higher). Furthermore, the Baby Boom Generation is the first to have a
large number of full-time female workers who unlike those who came before them are eligible for
disability benefits, as well.
-The claim made by opponents is that fraud is rampant within disability benefits. That claim is simply
false. Less than 1% of disability benefits were more than they should have been and actual fraud was less
than that.
-Opponents of Social Security have attempted to make the Social Security Administration work less
effectively by preventing it from spending more money on administration. This tactic is geared towards
making people dissatisfied with government services. Staff has been reduced, offices closed, and waittimes on the telephone have increased. This may save some money, but it does a disservice to those
interacting with the Social Security system and further fuels the belief that government is ineffective.
-Unfortunately, opponents want government services to be experienced as and perceived to be ineffective
because it reinforces their argument that government programs should be cut. It is a circular-argument:
funding is cut for government services, services become less efficient, individuals become dissatisfied
with government services, and critics then argue that since government is inefficient we should stop
“wasting” money on it, spending cuts are enacted, which then make the services even more inefficient.
Source: Social Security Works: Why Social Security Isn’t Going Broke and How Expanding It Will Help
Us All. Nancy Altman and Eric Kingson. The New Press, New York, 2015.