Social Insecurity

Social Security was signed into law in 1935 by Franklin Roosevelt as part of his “New Deal” Depression-inspired legislation. Though the statute has been amended repeatedly, its basic structure remains intact. It covers everything from unemployment benefits to Medicaid and Medicare to disability and retirement benefits. To put it mildly, the program is huge: “By dollars paid, the U.S. Social Security program is the largest government program in the world and the single greatest expenditure in the federal budget, with 20.8% for social security, compared to 20.5% for discretionary defense and 20.1% for Medicare/Medicaid. Social Security is currently the largest social insurance program in the U.S. where in 2003 combined spending for all social insurance programs constituted 37% of government expenditure and 7% of the gross domestic product. Social Security is currently estimated to keep roughly 40 percent of all Americans age 65 or older out of poverty.

“The 2011 annual report by the program's Board of Trustees noted the following: in 2010, 54 million people were receiving Social Security benefits, while 157 million people were paying into the fund; of those receiving benefits, 44 million were receiving retirement benefits and 10 million disability benefits. In 2011, there will be 56 million beneficiaries and 158 million workers paying in. In 2010, total income was $781.1 billion and expenditures were $712.5 billion, which meant a total net increase in assets of $68.6 billion. Assets in 2010 were $2.6 trillion, an amount that is expected to be adequate to cover the next 10 years. In 2023, total income and interest earned on assets are projected to no longer cover expenditures for Social Security, as demographic shifts burden the system. By 2035, the ratio of potential retirees to working age persons will be 37 percent — there will be less than three potential income earners for every retiree in the population. The trust fund would then be exhausted by 2036 without legislative action.” Wikipedia

In the George W. Bush administration, there was an effort to move the program into the private sector, giving beneficiaries greater control of their retirement accounts. The financial collapse – including the fall of the very stock market that would have supported such privatization – put a cap on such discussions, but recent talks among GOP candidates, triggered by a Tea Party-driven focus on reducing the deficit and contracting the role of the federal government coupled with the issue of continued funding for the program itself, have reopened discussions of what to do with Social Security in coming years. Presidential candidate and Texas Governor Rick Perry has suggested that such retirement efforts might be better served by being moved to the State level, and indeed some Texas jurisdictions have had modest success in alternative retirement structures.

Putting aside the issues of what happens to beneficiaries when the private investments fail or the alternative retirement accounts go insolvent (many simply say, “too bad” while others argue for an ERISA-like federal retirement benefit insurance policy), what does such an alternative program look like, and what have the results been? Perry has written about and touted one particular Texas area program: “In the late 1970s, county employees in Galveston, Tex., made an unusual and risky decision that they thought would help secure their financial future. They took advantage of a federal provision available at the time and opted out of Social Security…

“For the highest-earning workers in the Gulf Coast county, the personal accounts have yielded nearly double what they might have collected under Social Security. But according to independent studies, the results have been less favorable to those on the lower end of the income spectrum… In 1999, the Social Security Administration and the General Accounting Office (now the Government Accountability Office) separately examined the program adopted by Galveston and surrounding counties and found that its benefits depended on income and longevity: The lower one’s income and the longer one lived after retirement, the less advantage there was to participating in the program compared with Social Security. Also, Social Security payments increased with inflation, while payments under the Galveston plan did not.” Washington Post, September 13^th.

Many Democrats theorize that Republican candidates are shooting themselves in the heart – and losing at least the senior vote – by assailing the current levels of Social Security, but younger people seem either not to think that far ahead or simply believe that the system will long since have run out of money when they retire, and elders, well, don’t believe the Republicans will actually impact accrued benefits for existing seniors. This reaction is typical: “‘None of them are going to take a chance on offending this age group,’ said Bob Landino, 78, who lives in Sun Lakes [Arizona where Mitt Romney recently campaigned] and is retired from the restaurant industry. ‘They’re going to change it for 20-, 30-, 40-, 50-year-olds, but not if you’re already at the age of retirement. That ain’t gonna happen.’” Washington Post, September 15^th.

In a world of hot debate, it is important to take the emotions out of the discussions and look at the facts. If there are alternative approaches to retirement, we need to be able to look at them. But even compared to this successful Texas program, Social Security doesn’t look too bad. What are your thoughts?

I’m Peter Dekom, and we need so many solutions to so many problems, but let’s start with the facts.