What’s in Store for Social Security?

Trying to figure out how to keep blogging on progressive solutions to social and economic problems that affect low-income people. Seems kind of hopeless, unless I focus solely on what’s going on in the District of Columbia. Not ready to do that, however.

So here’s a national issue that should mean a lot to the white, blue-collar working class whose votes, we’re told, largely account for Trump’s victory — the future of Social Security retirement benefits.

For somewhat over a year now, we’ve had promises and proposals to expand Social Security. Doubt we’ll see anything like them reach the President’s desk. Probably wouldn’t have, even if Clinton were sitting there.

But the problems they sought to address will continue to make old age insecure for millions of former workers and their families. In fact, without one form of expansion, they’ll be in worse shape than they already are.

Why Social Security Needs Fixes

As everyone, I think, knows, the Trust Fund that helps pay for Social Security retirement benefits will run out of money long about 2034. Ongoing payroll taxes won’t fully cover them. So unless the Trust Fund gets more, retirees will receive only about three-quarters of what they’re entitled to.

Social Security is, by far and away, the most effective anti-poverty program we have. Last year, the benefits it paid out lifted 22 million people over the applicable poverty threshold, including about 15 million seniors. But they fall far short of living costs for many.

So far short that about 6.5 million seniors lived in poverty last year, according to the Census Bureau’s better poverty measure, which factors in the cash value of major safety net benefits like food stamps and subsidized housing.

Most received Social Security benefits. But those who lived alone had less than $11,370 to pay for all their living expenses. Nearly 43% of all seniors were either poor or nearly so, i.e., had incomes below twice that threshold or one that’s only about $3,000 higher for couples.

The main reason they’re far from financially secure with Social Security is that the formula used to calculate benefits is based on the per-year average of what people earned during their highest-paid 35 years.

This keeps benefits low not only for retired low-wage workers, but others who didn’t work consistently or chose to work part-time for awhile — to care for children or an aging parent, for example.

It also depresses benefits for surviving spouses, who may receive only a portion of what the breadwinner was entitled to, and for other dependents, who always do.

How to Prevent the Shortfall

Basically, we’ve got two types of solutions to the impending shortfall — increase the funds Social Security receives through payroll taxes or preemptively cut benefits.

The Democratic party platform embraced the former, staunchly promising to “fight every effort to cut, privatize, or weaken Social Security.” Clinton did likewise, of course.

Both pledged to collect more in payroll taxes from high-income Americans. The platform defined them as those with annual incomes over $250,000. Clinton presumably meant the same, since she’d promised not to raise taxes on anyone who had less.

She mentioned two options, perhaps not mutually exclusive — tax some form or forms of income not subject to payroll taxes now and/or lift the cap on wage income. That’s now $118,500 and will get bumped up a tad each year that Social Security’s average wage index rises.

Lifting the cap — or scrapping it altogether — is hardly a new solution to the shortfall. Nor one supported only by left-leaning experts and politicians.

A majority of President Obama’s bipartisan commission on fiscal responsibility recommended a phased-in lifting of the cap until payroll taxes covered 90% of wage income, as they did in the early 1980s.

On the other hand, the Republican party platform says that all options to preserve and “modernize” Social Security should be considered, then swiftly reiterates the party’s opposition to tax increases.

House Speaker Paul Ryan refers vaguely — and ominously — to reforming Social Security. This, in the past, meant large benefits cuts, albeit postponed, and a further, perhaps ongoing increase in the eligibility age, which also translates into cuts.

His budget plan also included an option that would have allowed workers to divert a portion of their payroll taxes from the Trust Fund into private retirement accounts. The structure of the accounts would have benefited only high earners, the Center on Budget and Policy Priorities said.

And the additional payroll taxes the plan provided for wouldn’t have kept Social Security solvent over the long term because the Trust Fund would have insured against any losses, including merely from inflation.

Ryan has since withheld such specifics. But I see no reason to believe that the House will move on a plan to preserve Social Security benefits for the long term — let alone expand them for seniors who can’t significantly supplement them from their own retirement accounts and other savings.

So far as our incoming President is concerned, we’ve no idea what he intends for Social Security. He’s said he wouldn’t cut benefits. But one of the advisors close to him implied he might — as, in fact, did his running mate.

He’s also said that the yuge economic growth his other initiatives will fuel is the key to preserving Social Security. Economists, not all left-leaning, beg to differ. And he himself hinted that future generations might face “changes.”

Well, the program does need changing — and not only to ensure that future retirees don’t have to try living on less than the benefits they’d receive if the shortfall’s averted.

To be continued.

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3 Responses to What’s in Store for Social Security?

  1. Patty Johnson says:

    Kathryn,

    Thank you for this piece! This is a huge surprise to me as I’ve read that there is plenty of money. My husband also felt the fund was “safe.” Can’t wait until your next column…bet you get lots of feedback on this in the meantime!

    Sending you best during this very horrid time – cannot believe our country elected this man!

    Patty

    Patty Johnson patrileyj@aol.com

  2. Kathryn Baer says:

    There is enough money in the Trust Fund now, Patty. The shortfall is prospective—and preventable. The issue is how Congress, with the President’s approval will change the law. The outcome of the election gives us greater reasons to worry, but I think we’ll see attacks on other so-called entitlements first.

  3. […] recent post on Social Security left out two related pieces of the story — why retirement benefits […]

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