Social Security: a target without a cause

Conservative Republicans want to cut Social Security, even though it's not a major contributor to US debt. A better solution to future Social Security shortfalls is a thriving economy.

David R. Francis

Before President Obama's State of the Union message Jan. 25, Social Security supporters were "really scared," as one Washington pundit put it. They worried that Mr. Obama would suggest cutting Social Security benefits as a way to trim the massive federal deficit. One liberal analyst, Robert Naiman, even called for citizens to occupy the offices and dog public events of members of Congress who refused to protect the program.

It turned out that Mr. Naiman's "jihad," as he called it, wasn't needed. The president's Social Security proposal is relatively mild and vague. He called for strengthening Social Security for future generations.

But Social Security remains a target of some conservative Republicans. Rep. Paul Ryan of Wisconsin, the new chairman of the House Budget Committee, states that Social Security is "going broke"; that it faces a $5.4 trillion deficit over the next 75 years, an amount equal to more than one-third of the annual size of the US economy. He maintains that if nothing is done, beneficiaries will face "a painful 22 percent across-the-board benefit cut" in 2037 when the Social Security trust fund is exhausted.

His message: Cut Social Security before cuts are forced on it. Partially privatize it, Mr. Ryan has further suggested. In other words, Social Security is a good place to cut even if it is not the cause of huge projected federal budget deficits.

Liberals offer a different view. Social Security benefits are modest, notes Kathy Ruffing, a policy analyst at the Center on Budget and Policy Priorities in Washington. Retired workers, disabled workers, and aged widows receive an average of only about $14,000 a year. More than 95 percent of recipients get less than $2,000 a month.

Moreover, most beneficiaries have little significant income from other sources. Corporate pensions have dwindled. Even with Social Security, median household income for all elderly beneficiaries is only about $20,000 a year. Further, Social Security benefits in the United States are low compared with government pensions of other advanced countries. If Social Security pensions in the US are compared with the government pensions provided by other relatively rich nations in the Organization for Economic Cooperation and Development on the basis of what proportion of preretirement earnings are replaced, the US ranks 26th out of 30. An average worker earning $43,000 in 2010 dollars will find that Social Security will replace only about 37 percent of his preretirement earnings on retirement at 65, calculates Ms. Ruffing. Raising the retirement age, as is often proposed to ease the program's coming deficit, means, in effect, an across-the-board cut in lifetime benefits.

Social Security remains the nation's most effective antipoverty program. Without it, official poverty rates would rise from an already embarrassing 14.3 percent of Americans to about 23.7 percent, calculates the Economic Policy Institute. Social Security administrative costs are about a tenth that of private insurance companies.

So what's the answer for the program's way-in-the-future deficit?

The best remedy, economists agree, would be a thriving economy. It would boost payroll tax revenues automatically. If still needed, Social Security taxes could be hiked a bit.

But in 2037, benefits paid from payroll tax revenues alone will still be higher in real purchasing power than benefits today.

• David R. Francis•is retiring. This is his last weekly column. See the tribute to his storied career by editor John Yemma here.