Social Security: Examining Some Deceptions
By John M. Swomley
[Dr. John Swomley is professor emeritus of social ethics at St. Paul School of Theology in Kansas City. He is a frequent contributor to Christian Ethics Today.]
The modern American system of Social Security has no biblical parallel yet it is clearly a social expression of love of neighbor that ensures self-respect rather than dependence on charity. It provides a mechanism whereby employers and workers while they are employed contribute to an insurance fund that provides an income when they are no longer able to work. In addition to the Jewish-Christian concern for neighbors and strangers, there are strong Bible statements against those who seek riches at the expense of the poor.
Our Social Security system is today under attack by some politicians and those who would privatize it for personal or corporate gain.
The various scare attacks on Social Security which began in the early 1990s are now being fueled by manufactured crises and downright deception. The deception and the crises predicted in the daily press and other media should be examined in the light of the recent past and current statistics.
Deception One: Social Security benefits contribute to the national debt. This is false because the Social Security "Trust funds" have in the past and the present generated a surplus of receipts over expenditures. They continue to do so up to the present time. For example, in the three years prior to 1995, "Trust funds" generated a surplus of receipts over expenditures of between $46.2 billion and $53.5 billion per year. (Olenick, New York Times, Feb. 8, 1995)
It is important to note that every yearly surplus has become a part of the general federal budget instead of being kept in a separate trust fund.
This surplus, which continues to be generated by Social Security taxes (FICA), brings in nearly $100 billion a year more…than the system needs to fund current benefits." (J.A. Heaster, Business Section, Kansas City Star, Nov. 8, 1998). Actually, at the end of fiscal year 1998, both President Clinton and Congress hailed the budget and treasury surplus which came "from excess Social Security receipts and unspent revenue from tax collections dedicated to other specific activities such as highway construction, air transportation improvements, and unemployment insurance coverage." (Business section, Star Kansas City, November 4, 1998)
The American people were duped by political speeches into believing that the budget surplus would "save Social Security." But the Social Security tax surplus was again put into the government`s general budget, and Social Security was given another IOU claim on the Treasury, which will probably never be paid into future Social Security needs.
Deception Two: The Social Security Trust Fund will become insolvent or bankrupt within the next 30 years as "baby boomers" enter the system, or earlier according to those who want to end the system or privatize it. This is false for two reasons: 1) the U.S. Treasury debt to Social Security in 1995 totaled about $400 billion, (Heaster, Kansas City Star, March 4, 1995) and Social Security taxes continue to bring in nearly $100 billion a year.
Business Week`s ad in the N.Y. Times of November 21, 1998 commented: "Conventional wisdom says that Social Security will go bankrupt in 30 years under th e weight of 78 million retired baby boomers. But Social Security actuaries use an average economic growth rate of 1.7% over the next three decades to reach that conclusion." However, assume that the "annual growth rate is half a percentage point faster (2.2%) over the next 30 years" and that "the federal tax bite stays the same….This math generates an additional $5 trillion in 1998 dollars in cumulative revenues–a huge sum available for seventy-something boomers." Actually, "the U.S. has been growing at a 2.5% rate in the 90s."
The growth rate of 1.7% is unrealistic because it is lower than even the 1.9% growth during the Great Depression of the 1930s.
Deception Three: Propaganda by advocates of privatization of Social Security claims that it would enable individuals to invest their Social Security funds in stocks at a greater return on their money.
According to a New York Times editorial of November 9, 1998, "Privatization advocates would have individuals own stocks through accounts like 401k plans offered by many companies. Such plans are very attractive to Wall Street but the fees Wall Street would collect would come out of profits available to pay beneficiaries. Will the government…be willing to guarantee that Social Security recipients would not suffer if stocks fall drastically? If so, would that create an incentive for those managing the funds to use risky strategies? If not, the idea of a safety net begins to fade."
Business Week`s ad in the N.Y. Times of November 21, 1998 also commented, "Privatization doesn`t work…without faster growth. And with faster growth it isn`t needed. Stocks have been rising at double-digit rates because the economy has been booming, but with at 1.7%, returns in the stock market wouldn`t be much higher than yields on government bonds. Certainly not enough to throw out the Security system as we now know it."
Deception Four: Advocates of privatization assume that Social Security is merely a retirement fund. Actually, it is an important insurance fund. About 15 percent of Social Security payments go not to retirees, but to people who become disabled. Another 15 percent goes to survivors` benefits. About 200,000 workers die each year. Social Security protects 98 percent of all widowed spouses and dependent children to age 18. No privatization program would provide such protection. If it is argued that most people would not need such insurance, that is belied by the almost universal use of fire insurance by property owners, most of whom hope never to have their property burn. Insurance is for the unexpected disasters.
Privatization unrealistically depends on healthy workers who will invest well at or before age 25, who do not become disabled or die before age 65, and who never have to dig into savings for emergencies.
Deception Five: Advocates of privatization do not mention the risk of recession or else assume that retirees will not have to retire during a recession when stock prices may be very low soas to provide little sustained income.
According to Peter Lynch of Fidelity Investments, "We`ve had nine recessions since World War II…there`s no doubt a severe recession can bring stocks to grief…Recessions don`t telegraph their
arrival. In most cases stocks have already fallen by the time the trouble starts." (Fidelity Focus, Fall, 1998, pp. 14, 15)
Deception Six: Advocates of privatization claim that as the baby boom generation reaches retirement age a heavier tax will fall on young workers. In addition to the refutation of this under Deception 2 and 3, this is false because it presupposes that we will keep the present unjust taxation of lower income workers.
"Most people earn salaries well below $60,000 and pay Social Security tax of 7.65 percent of their full salary. But this tax cuts off on salaries above $61,200, so that the maximum tax remains $4,681.80.
"If your pay is $100,000 you pay only 4.7 percent; if it is more than $200,000, your rate goes down to 2.3 percent. A chief executive officer who is paid a million a year, as many are, pays a tiny one-half of one percent: $4,681 divided by $1 million. (Olenick, N.Y. Times, February 8, 1995)
In other words the present tax is hard on lower income workers and provides "an outrageous loophole" for the wealthy. Olenick estimates the increase in Social Security revenue, if this were closed, at more than $100 billion. (Ibid.)
Deception Seven: The motive for pessimistic reports about the future of Social Security`s predicted future insolvency is concealed under the idea of "reform." The real reason for such reports is to attempt to prepare the public, including retirees, for the privatization of pensions, requiring workers to put a percentage of their earnings into private savings plans. This provides bankers and other financiers with a large and ready pool of cash. It is, in effect, compelling the poor to underwrite the wealthy through a proposed scheme of investment in stocks.
Deception Eight: Social Security misleads people into not saving. This, too, is false. The Los Angeles Times of February 8, 1995 said the maximum payment to someone retiring at age 65 that year was $1,199 per month. Even if that has increased somewhat since then, it is hardly enough for a person with medical, housing, food, transportation and other costs. Most people know in advance that they will need more income than is to be provided by Social Security when they retire and if able to do so, save accordingly.
The Congress in 1994 started taxing Social Security benefits (up to 50 percent) if their adjusted gross income (including interest and dividends from savings) is between $25,000 and $34,000 for single taxpayers and $32,000 and $44,000 for couples filing jointly. If their incomes are over $14,000 (single) or $44,000 (couple) the taxes are on 85% of their Social Security benefits. In other words, the government is saying, "If you save too much we will take at least part of it away." It is not the Social Security system that discourages savings, but Congressionally generated taxes on the income brought about by savings.
The $292 to $300 billion a year paid to Social Security recipients greatly aide the economy, not only because of its consumer purchasing power, but because each dollar in benefits generates up to four dollars of economic activity. Moreover, if working children had to pay out of pocket for their parents` medical bills or other expenses, it would be a greater burden on them than the present Social Security tax spread over many years.
Finally, it is to be remembered that members of Congress who attack the Social Security system are hypocritical in that they themselves participate in a pension system that provides far more when they retire than any Social Security recipient receives and on average more than private sector employees can expect to get. "For example, members retiring at age 60 with 30 years of service would get $99,175 a year; in the private sector it would be $56,220. Frequently they are also employed by private interests at much higher salaries as lobbyists" when they leave Congress. (Wall Street Journal, January 26, 1995)
Former House Speaker Thomas Foley, who received a salary of $171,000as Speaker, after leaving office received a pension of about $124,000 a year and also was a lobbyist paid by a law firm. Some Senators got "pension of $78,000" or more. Because benefits grow with length of service, the system discourages term limits and reduces a concern for such limits. (Ibid.)
For all federal employees, unfunded pension liabilities were $870 billion in 1995 and if military retirees are included, the money promised, but not then available was $1,495,000,000,000 in 1995. Yet this, unlike the well-funded Social Security system, is never publicly discussed.
The Social Security system should not only be maintained, but should be separated from the general federal budget into a trust fund, as originally intended when legislated by Congress. It is an essential safety net for most American families. It also helps sustain the total American economy in the periodic recession and depression years in which stocks and other private investments fall in value. It is therefore an important ethical contribution to our complex society as well as to millions of our follow citizens.
