18

How to fix Social Security

Robert Reich

TEXT OF STORY

Kai Ryssdal: The odds of avoiding a government shutdown look a little better today than they did yesterday. Speaker John Boehner says the House will pass a two-week funding bill, provided it contains some spending cuts.

Therein lies the rub. What will get cut to help control the deficit and what won't.

Commentator Robert Reich says one program gets an undeserved share of the blame for the deficit. And anyway, there's an easy fix.


Robert Reich: Social Security is not at all responsible for the federal deficit. Just the opposite. Until last year, Social Security took in more payroll taxes than it paid out in benefits. It invested the surpluses in Treasury bills -- in effect, lending them to the rest of the government.

But now Social Security has started to pay out more than it takes in. So to keep it going, it collects only what the rest of the government is obligated to pay it. This will keep it fully solvent for the next 26 years.

But why should there even be a problem 26 years from now? Back in 1983, Alan Greenspan's Social Security commission was supposed to have fixed the system far beyond then by gradually increasing payroll taxes and raising the retirement age.

The answer is Greenspan's commission failed to predict how much income would become concentrated at the top. Remember, the Social Security payroll tax applies only to earnings up to a certain ceiling that rises with inflation. That ceiling is now $106,800.

Back in 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of total income covered by Social Security. Today, though, the Social Security payroll tax hits only about 84 percent of total income.

It went from 90 percent to 84 percent because income inequality has widened. Now a much larger portion of total income goes to the top -- almost twice the share they got back then.

If we want to return to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000. Do that and Social Security's long-term problem is solved.

So there's no reason even to consider reducing Social Security benefits or raising the age of eligibility. The logical response is simply to raise the ceiling.

Not incidentally, several months ago the White House considered proposing that the ceiling be lifted to $180,000. Somehow, though, that proposal didn't make it into the president's budget.


Ryssdal: Robert Reich was Secretary of Labor for President Clinton. His most recent book is called "Aftershock: The Next Economy and America's Future." David Frum is in our commenting future; he's back next week. Send us your comments.

Log in to post18 Comments

Pages

If you want the rich to pay more into Social Security you have to give them something. I suggest that instead of them drawing money from the system when they come of age that anyone making over $106,000 are offered an alternative. They can take a tax cut (less the 15% most recipients payback) equal to the amount that they'd annually receive as a benefit. The tax cut can be raised or lowered based on the needs of the SSA. The SSA earnings ceiling could then be raised to $250,000 which would then cover 99.9% of the people.

Late to read this, but I do have one question for those who resent lifting the ceiling because THEY can't reap as much money: do you never consider what kinds of government support or funding access (or your employer's access) you have received that lower income people can't access? Why would you oppose the leveling of social security? Sounds like sheer selfish nastiness to me. Blows my mind every time I hear this specific complaint from someone who makes more than $100K annual...

Thank you for Mr. Reich's comments regarding Social Security. However, this op-ed raises even more questions for me. It seems if Social Security is solvent, and it is the rest of the government that is borrowing from Social Security, then some other part of the government is not solvent. In a future story or op-ed, can you tell us what part(s) of the government is not solvent and requires support from the Social Security Trust? And, what is the cause of that insolvency?

Many thanks to Robert Reich for providing a voice of reason and sanity in the midst of a debate filled with irrational, skewed views that often seem to cross the line into hoarse shouting.

I agree with several of the posters above who said there should be no cap on who contributes to the fund. If everyone paid into the Social Security fund regardless of their income, then it would be sustainable for as long as Congress could keep its sticky fingers out of the cookie jar. It's unfortunate that so many others are advocating the view that Republican deficit spending habits should force my grandma to lose her old age pension.

Social Security is the single greatest pillar of support for the American middle class. Pull that pillar down, and the rest of the country goes crashing down with it. Prop that pillar up, and we have a solid foundation on which to build our future prosperity.

I always look forward to hearing Robert's sage advice, but it appears he doesn't know that much about Social Security. If I make $100,000 every year and you make $100,000,000 every year, you don't pay 1,000 times as me into OASDI (Social Security) and you'll get out of it about the same as me. And both of us will get far less out of it than what we paid in (those making less money can get more out than they paid in).

Social Security was purposefully set up to transfer wealth from the rich to the poor. If we burden the rich even more, then it will lose their support and will disappear. The Supreme Court hath declared that it's not one person one vote, but rather it's one dollar one vote (campaign finance).

I suggest you interview an actuary that's familiar with Social Security and determine if Robert's assertions are correct.

Why is Marketplace so obsessed with the opinions of Robert B. Reich? Why don't you ask the opinion of someone who REALLY understands the issues without all the politics? Somebody like David Walker, the former head of the General Accounting Office. That guy understands numbers and he doesn't lie.

So 6% of people are now making more than $106,800 than they were 26 years ago (SS payroll tax now hits 84% vs 90% in 1983). Seems more like prosperity than income inequality. 6% of us are richer. Let's see who could it be: Facebook, Google, Amazon, eBay, Zappos, Walmart, ... Wait a minute! Pretty much all of us are richer than we were 26 years ago!

He is absolutely right. I say go further than $180,000, there should be no ceiling. Also I feel that anyone with a retirement income over a certain amount should not receive Social Security.(amount to be determined) Consider it the price for living in a society that allowed them to become wealthy.

This supports other data that I've been reading elsewhere. That data says Social Security is not really broken, but rather, the rest of government has simply raided its surplus to cover deficit spending.

The whole conversation around Social Security is like the cartoon where many ants are crawling over an elephant, only able to see small sections of the beast, and each ant calling what they see something besides what it actually is: an elephant.
Likewise, this beast called Social Security is so misunderstood and misrepresented. Not only by the average citizen, but even by the president who continues to make very inaccurate statements about it.
In actuality, SS is probably the all time success story of the US government. Even after 75 years it still provides 45% income for the average retired American.
Obama really blew it when he recently lowered FICA. He not only reduced SS's annual income by 33%. He reduced workers' contributions to their retirement accounts by 33%.
Isn't the real problem to find a way to make SS last longer than 2037? How does one do that by cutting back on its only source of income?
Great article. Thanks for publishing this.

Pages

With Generous Support From...